Committee Transcripts: Standing Committee on Finance and Economic Affairs - 2001-Feb-14 - Pre-Budget Consultations

Pre-Budget Consultations
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PRE-BUDGET CONSULTATIONS

CANADIAN FEDERATION OF INDEPENDENT BUSINESS

CANADIAN AUTO WORKERS

PEOPLE FOR EDUCATION

ONTARIO HOME BUILDERS' ASSOCIATION

BANK OF NOVA SCOTIA

TORONTO-CENTRAL ONTARIO BUILDING AND CONSTRUCTION TRADES COUNCIL

CO-OPERATIVE HOUSING FEDERATION OF CANADA, ONTARIO REGION

NORTH YORK CHAMBER OF COMMERCE

GREATER TORONTO HOTEL ASSOCIATION

TORONTO DISASTER RELIEF COMMITTEE

CONTENTS

Wednesday 14 February 2001

Pre-budget consultations

Canadian Federation of Independent Business
Ms Catherine Swift; Ms Judith Andrew

Canadian Auto Workers
Mr Jim Stanford

People for Education
Ms Annie Kidder; Ms Gay Young

Ontario Home Builders' Association
Mr Wayne Dempsey; Mr Albert Schepers

Bank of Nova Scotia
Mr Aron Gampel; Ms Mary Webb

Toronto-Central Ontario Building and Construction Trades Council
Mr John Cartwright
Co-operative Housing Federation of Canada, Ontario region

Ms Joyce Morris; Mr Michael Shapcott

North York Chamber of Commerce
Mr Elie Betito; Mr Lorne Berg

Greater Toronto Hotel Association
Mr Rod Seiling

Toronto Disaster Relief Committee
Ms Danielle Koyama

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 Garfield Dunlop (Simcoe North / -Nord PC)
Mr John O'Toole (Durham PC)

Also taking part / Autres participants et participantes

Mr Peter Kormos (Niagara Centre / -Centre ND)
Mrs Sandra Pupatello (Windsor West / -Ouest L)

Clerk / Greffière

Ms Susan Sourial

Staff / Personnel

Mr David Rampersad; Ms Elaine Campbell,
research officers, Research and Information Services

The committee met at 1002 in room 151.

PRE-BUDGET CONSULTATIONS

The Chair (Mr Marcel Beaubien): Good morning, everyone. I would like to bring the committee to order. I don't have any great announcements to make prior to the meeting this morning, so I think we'll proceed with the business that's in front of us.

CANADIAN FEDERATION OF INDEPENDENT BUSINESS

The Chair: We have representatives this morning from the Canadian Federation of Independent Business. On behalf of the committee, welcome, and could you please state your name for the record.

Ms Catherine Swift: I'd be happy to. My name is Catherine Swift and I'm president of the Canadian Federation of Independent Business. With me is Judith Andrew, vice-president of provincial policy with special responsibility for Ontario, and I'm sure she's known to you all. That is, after all, our job.

Thanks very much for the invitation to come and speak to you today, especially on Valentine's Day. Happy Valentine's Day, everyone, and I'm sure this will be its usual love-in as a result.

In any case, I've been here several times in this capacity, and at this particular juncture I'm supposedly an expert witness and my background is as an economist. so I'll be speaking largely from that vantage point. I know Judith has an appearance later, where she will be more directly speaking on behalf of CFIB, but naturally the small business perspective on issues will be what is directing my comments here today as well.

The outline of my presentation today-and there's a black-and-white copy of this PowerPoint presentation in your kit, just to let you know, as well as some other materials. I thought one issue that was pretty important to address was our changing economic times. I always, before I come here, look at what I said in previous years just to see if it bore fruit at all, and I was happy to see that some of the comments and predictions we made last year did indeed bear out with a very good year, for example, for the Ontario economy last year, a lot of healthy job creation, a lot of very positive activity in the economy generally and in the entrepreneurial small business sector in particular. But of course now it does seem that we are getting that inevitable turn in the business cycle.

We collect data on an annual basis from our members on their outlook for the next year for their business and for the economy generally. We typically get about 10,000 members responding to that nationally and the Ontario numbers are, what, about-

Ms Judith Andrew: Five thousand.

Ms Swift: Close to 5,000, close to half of that, and just like the economy, about 40% of our members are in Ontario. So it usually gives us a pretty good perspective on what the small business community believes is [failure of sound system]. The small and medium-sized business community has been growing as a proportion of the overall economy now for over two decades and in fact now the small and medium-sized business community represents about half of the economy. It's a pretty good indicator of a big chunk of economic activity. I'd like to speak to those data that we collected late last year, and I'd also like to talk on a number of specific public policy issues that our members prioritize as their important issues for the next little while. I'd like to close with just some general comments on an entrepreneurial approach, not simply to economic issues but to public policy issues, to government conduct and in other areas as well.

One thing I should just mention by way of background is that there is a handout, just a one-pager, included in the package. "CFIB Membership Profile" is its title. It's just some background information on whom we represent across Canada and in Ontario, the sectoral breakdown, the demographics effectively of our small business membership, because I think that's often of interest to see who exactly is it we're speaking for.

Certainly all economists are attuned very closely to what's going on in the economy right now. There's no question we're having quite a slowdown south of the border and there have certainly been indications of a slowdown in Canada as well. We've had the longest period of economic growth in the 1990s since the post-Depression era, the post-war era, so we've had a pretty good run of it for the last number of years and I guess it couldn't last forever. But I think too we don't see our members as being horrifically pessimistic. We see them as fairly realistic. They are certainly seeing a slowdown happening, but they don't believe that it should sink into recession. It's always wise to remember that economists are accused of predicting seven out of the last four recessions so sometimes you have to take a lot of these prognostications with a grain of salt.

One thing that's very important is that the so-called economic fundamentals are much different than they were last business cycle. Of course, no two business cycles are alike, so you can't by any means compare them, but there are some common factors that are worth remarking upon. In the late 1980s, as you might recall, we had high inflation, very high price levels in many markets, real estate being a notable example. Our interest rates were very high. Our Canadian dollar was 89 cents, which a lot of people forget now because it hasn't been there for a very long time. But in any event we had a lot of situations prevailing. Also governments were in very serious debt and running ever-increasing annual deficits here in Ontario as well as federally. Actually, moving into the 1990s, we saw tax increases, which of course was the most absurd way to deal with an economic turndown, but as the economy slipped governments were so badly in debt because of stupid past practices that they had no choice but to actually increase tax levels. So we inflicted on ourselves a worse recession. We would have had a recession anyway, because it was global after all, but we certainly made it more painful for ourselves in the early 1990s here in Ontario and federally.

Again, happily we see here in Ontario, and across the country, for that matter, government debt in better shape. It has still not gone away, so we don't want to underestimate it as an issue, but it certainly is heartening to see, for example, in the last few days Ontario's credit rating upped a notch. Those things are always good. It means our cost of debt declines when that happens and naturally, the less we pay to finance our debt, the more we can direct that to more constructive uses.

Tax levels also have come down and we've always believed that was a necessary condition for good and enduring economic growth. We've seen them come down again federally and provincially, and we don't see inflation being anywhere near the factor it was in the late 1980s, although of course we've seen it bop up lately, but the sole reason has been energy costs. Again, it doesn't make it go away, but it's not an across-the-board inflationary growth activity that we're seeing here; it's very specific and it's due to factors that are different from your customary sort of inflationary push.

A number of the provincial policies over the last number of years will help cushion the impact of a slowdown. I mentioned that lower taxes are certainly a very positive thing.

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Something that hit our members extremely hard in the early 1990s was the whole payroll tax area. We harp on this constantly, payroll taxes, but we do so for good reason. Smaller firms are more labour-intensive than larger firms, therefore taxes levied on payroll hit them disproportionately harder. They discriminate against the smaller business community, the more labour-intensive community. As a result, the reductions we saw in EHT back a number of years ago exempting those with payrolls under $400,000 were a real boon to small firms and, we believe, one of the factors behind the very stellar job creation record of this province over the last number of years.

We believe now is a good time to contemplate increasing that threshold. I believe in Manitoba it's $600,000. Is it still, Judith, or is it higher than that now?

Interjection.

Ms Swift: OK. Originally, we were actually looking at the Manitoba model because they had found that workable. We certainly feel that increasing that threshold should be contemplated now and the $600,000 level of payroll is sort of a logical target to be looking at. We've got a number of information backgrounders in the package on various tax issues, just for your information.

Another area I want to mention is the leadership that Ontario showed in the capital gains area. Happily, the federal government followed suit and reduced the capital gains inclusion rate to 50%, as Ontario had already announced several months previous. That was obviously a very positive development that will help the business sector-and individuals for that matter, naturally-considerably as investment activity in Canada generally has actually decreased somewhat on the foreign direct investment side over the last few years. We certainly do need as many inducements as possible to keep our economy going in that respect.

The whole issue of confidence is also very important. Of course it's an intangible, but when we face the kind of doom-and-gloom headlines we've seen lately, there seems to be sometimes an overstatement of the negatives in the economy. Although I'm not saying they should be ignored, I think we have to balance them out.

Last year, the consumer drove the economy to a large extent in Ontario and should continue to do so. All indications are that there is a lot of pent-up demand in the consumer area, but naturally that can be spooked if people feel they're going to lose their job or something horrific is going to happen that's going to affect their family finances.

The same with business confidence, naturally. Even though a lot of our members are looking to hire, are looking to invest over the next little while, even though they have the money, they have the wherewithal to do so, if they take a hard hit in the confidence area, then they'll put off hiring that extra person, they'll put off making that investment, expanding that facility, whatever it may happen to be, and naturally, that has the self-fulfilling prophecy element to it. Although we can't ignore some of the negative signals we're seeing out there in the economy, we think people should take a more holistic view and see the many positives as well, and there are indeed many positives.

In terms of our members, they remain pretty optimistic about 2001. I should comment that these data were collected in late November, early December last year, so naturally views can change, depending on what's coming out. But we have a pretty good tracking system. We have representatives out in the field every day. We interview across the country somewhere in the neighbourhood of 3,000 to 3,500 business owners every week, and we get the data weekly. I tend to feel that if there were really serious growing concerns about the economy from our membership, we would have heard about it in many ways by now. So far, that hasn't occurred.

It's also worth noting on the basis of this recent survey that small businesses in Ontario actually worked out to be the most optimistic in Canada with respect to their expectations for their own business.

This chart shows you the various provincial comparisons. As you can see, Ontario just nudges ahead of Alberta a little bit there in terms of its general optimism. This is what our members view. The sample for this survey was about 10,000 members nationally, by the way. As you can see, even in some of the lesser optimistic provinces the numbers are still not bad at all, but here in Ontario our members are quite upbeat about the prospects for 2001.

In terms of what they expect their own business to do, it's pretty comparable to last year. Of course last year was a very good year, as we know. Here you can see 2000 compared to 2001 and the numbers are really quite comparable in all the different areas.

When we look at the sectoral breakdown, again most sectors remain reasonably confident overall, but there you can see the financial sector, the real estate sector, manufacturing, business services. Community services are right up in the top few in terms of how they proceed. The primary sectors are at the lower end of the spectrum, albeit still not in terrible shape.

This chart shows the index that we compute. We've been running these data now-actually it's from when I arrived at CFIB, interestingly enough, that we started doing this survey. You can see over time how it has bobbed up and down with the economy. Right now, the latest computation of this index puts us just a little less optimistic than our members were for last year, but expectations remain quite high among small businesses.

We broke this down by Ontario region as well, just to give a bit of a basis of comparison. Again, not surprisingly, the more urban part of the province is more optimistic and northern Ontario again does usually bring up the rear. Nevertheless, we still see almost half of northern Ontario small business members expecting this year to be stronger. So the numbers are still by no means bad but a little weaker than southern Ontario and Toronto.

In terms of employment growth, as you can see, Ontario comes out as number two. I think it's important, of course, to recognize that these are always relative numbers. We're asking our members what they expect compared to last year. Of course, if last year was horrible, then saying they're expecting much better means something different than if last year was extremely good in some province and then they're still expecting things to be better.

Here Quebec, for example, which comes out the strongest in terms of their job creation expectations, came late to the economic recovery. As you may recall, they lagged other provinces by a good couple of years. We're seeing a lot of catch-up in Quebec right now, but I think the fact that after a very strong year in 2000, our Ontario members are number two-in other words, they're still expecting quite a good year in 2001-is quite interesting. In any event, just some other comparative statistics are there on that front.

We also always ask our members, "What would induce you to go further than what you're planning? If something changed in your environment, what would the factors be that would get you to create another job, for example?"

The first factor, the increase in customer demand, is really just a proxy for economic growth so, not sur-prisingly, a continuing strong demand situation would always be reason, but a lot of the other areas have to do with public policy, which we have more control over than the overall economy. That's not to say we have no control over the overall economy, but a lot of outside influences come to bear there as well.

The tax area is always an important issue for our members. Although those proportions have fallen some-what over time as taxes have come down-our members have recognized and acknowledged the improvement in the overall tax environment-we still see the payroll tax area and the other taxes-in other words, pretty much most everything else in the tax realm-as neck and neck as the number two factor, still a very significant factor. I don't think we can feel we're finished yet with any kind of tax reforms.

The bank credit area is growing as a concern. I want to talk about it in more detail a bit later, but that's obviously up there as well as a concern. The firm's debt load, some of the elements of the firm itself can have some influence on interest rates. Although they are, relatively speaking, low now, reductions are always positive, naturally. Then some of the other factors which are clearly not as important are down in the lower part of the list there.

With respect to the action areas that our members would like to see prioritized, tax generally remains number one. Here in Ontario, of course, we have a huge property tax problem. We've had it for a long time. It hasn't improved. In fact, given some of the slanging matches between the Toronto politicians right now and provincial politicians, it looks as if things could very well get worse. We've done a huge amount of research on property tax that I don't want to really belabour here so much. But Ontario has a very disproportionately discriminatory property tax environment which discriminates against the small-business owner. This of course has evolved over many years of politicians placating where the most votes are-again, not surprising; that's a rational, I guess, decision from a political standpoint, but it certainly has negative impacts on the economic side. I don't think we want to clean out our small businesses from downtown cores. Those are things that have made cities work, it's generally conceded, in Ontario compared to some other jurisdictions, say, in the United States and elsewhere. The whole property tax environment is very much a key component of retaining that mix in an urban setting.

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In Toronto right now, as you may be aware, if you take a comparable property of the same value, it's basically receiving the same value of municipal service and so on. Businesses face three times what residents pay. We know things are out of whack. They've been getting out of whack for decades and decades now. We applaud the measures to prevent it from getting worse that have been announced by this government, basically to not permit municipalities to widen the already wide gap between residents and businesses. We certainly encourage you to please hold firm with those views. We know that the problem isn't going to be fixed quickly. No group-residents, business, whatever-should be stuck with absorbing significant increases, but we just don't see how anybody wins by worsening the already wide discrimination against small businesses in that system.

Of course, the big chunk of the education portion of the property tax is something that the province also has complete control over now. We would certainly recommend, as I know Judith has done in her tax review panel work-a reduction in that area would certainly make a good start at trying to narrow the gap and make that environment more attractive and bearable for small and medium-sized firms.

The income tax area has seen some very positive changes here in Ontario. It seems, however, we're going to have to be fairly vigilant nevertheless about what our competitors south of the border are going to be doing over the next little while. We know they're talking about quite a significant further reduction in their income tax environment. So, again, I don't think we're done yet there, and remaining reasonably competitive with that environment is certainly something we're going to have to keep in mind.

The whole fuel tax area, of course, is horrific and is hitting everyone in certain sectors-transportation and what not-much more so than others. It was interesting, we did a quick little research project on looking at the margins of refiners. Refiners are making out like bandits these days. I don't know if you've seen the money, the kind of profitability. So all this talk about how it's these international OPEC prices, which, no question, have a role-but to pretend that that is the whole story in terms of what's going on with energy prices, it is simply not the case. We know you did do some research here and had hearings and so on to look at these prices. But some type of moral suasion has to be brought to bear by all governments on these energy companies, because they are robbing consumers of energy products in all areas, and the profitability is just outrageous. So there's no way just the OPEC increases are driving energy prices right now.

Also there's a good tax chunk, as we know, in all energy prices. We continue to encourage all governments to have some concerted action together and look at what they can do on the tax front. It's not the panacea. Obviously, everybody hopes that this situation, the elements of it we have no control over, such as the OPEC situation, will mitigate itself in the next little while. It doesn't look like it's going to be any time soon, though, unfortunately, from all indications. But the tax area is something governments can at least back off on, to some extent.

We'll mention one of our perennial bugbears: harmonization of the GST-PST regime. It has been done in three provinces in the Atlantic region, as you know. We were pleased to see that after some typical transition pains, our members in that part of the country received that very positively. It continues to be something we hear spontaneously from our members in Ontario, and elsewhere in the country for that matter, that it is just an ongoing administrative cost that is a nuisance they don't need. In the days, as we have now, where governments do have more spare change around, this could be a good time to look at measures such as that and reduce the overall PST-plus-GST level on Ontarians.

The payroll tax area I've spoken to earlier, at least on the EHT front, although there are also workers' compenation-WSIB-premiums that are still higher in Ontario than they are in many other jurisdictions across Canada. We have seen some reductions and they have certainly been welcome and positive. We've also seen a very rapid decline in accident rates, which of course is hugely welcome. We've been working hard, for our part, with our members to foster continuation of that fortuitous trend. Nevertheless, we still have a very large unfunded liability in that area, and we also know that new areas are being looked at, industrial disease being one example of something, and other areas that could blow the system right out of the water financially if they are not approached extremely carefully. So we should see further reductions in premiums in that area. There is no reason not to, unless some of the overzealous types seem to feel that we need to use WSIB to address things that it was never meant to address in the first place.

The whole fee area continues to be a growth area for governments generally, Ontario and the municipalities in Ontario being no exception. It's simply another tax, of course. One of the documents in the package actually outlines a number of commitments that the Premier made on a number of different issues, and one of them speaks to fees. The commitment there was, first of all, transparency. If we don't know what we're doing with fees, which frankly no government seems to know-it's quite amazing how, if you even ask one department, "What are all the fees you levy from your department?" you'll never get a list. I don't think this is an accident, of course, because if you saw it you'd probably be ill. But if you don't know what they are, obviously you can't do anything about them. We're pushing all governments, by the way, across Canada and federally on this same front.

The number one step is that initially we need transparency. We need to know what these fees are, how much they are being increased, or what has changed with them from year to year; and finally to not impose a fee-and Premier Harris did commit to this-unless it is offset by a tax decrease. Fees should not be another tax. User fees that are truly user fees are fine. If somebody is using a given thing, they should pay for it. There is nothing wrong with that principle, but of course we never see that. We never see taxes or anything go down when fees go up, so they end up just being another tax grab. Of course, the municipal area generally is a big concern right now in the fee department too, and there we would certainly like to see disclosure and more scrutiny.

This is a survey we did of Ontario businesses late last year as well. Which were the taxes or charges most harmful to businesses in Ontario? As you can see, property tax is number one, not surprisingly. Personal income tax and corporate income tax are pretty neck and neck, but it's interesting that personal income tax was ahead of corporate income tax, because those things sometimes switch places. Fuel tax has obviously shot up over the last number of months, not surprisingly, and then WSIB premiums and some other taxes are not far behind.

I want to speak briefly to the whole credit crunch possibility. We've been keeping a close eye on what our major financial institutions are doing. Ontario is in an interesting position. Surprisingly enough, it is more dominated by the Big Five banks than are other provinces. We don't have what we call a second tier. We don't have another layer of financial institutions that some other provinces have more significantly. Of course, the big banks dominate right across the country, but it's actually proportionately more so in Ontario than elsewhere. Since TD took over Canada Trust, and they were both primarily Ontario-centric financial institutions, it's naturally worse.

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Going back to the early 1990s, one thing we want to do is avoid what happened then. We had senior bankers tell us after the fact, after the carnage was more or less over, how the banking community overreacted horrifically to the downturn in the economy, especially in Ontario, and cut off businesses that shouldn't have been cut off. They were viable businesses and their credit lines were cut in half or eliminated, some drastic thing that drove them into worse financial straits than needed to happen or than otherwise was the case. Senior bankers told us this after the fact, and they always tell the truth, as we know. We thought this was happening among our members and we did in fact have it confirmed.

Since then things, if anything, have gotten even more stark in terms of the relationship between small firms and their bankers in the sense that we have fewer branches now. All of the institutions have been embarking on wholesale branch closings over the last number of years. This isn't a problem in downtown Toronto, per se, but it sure is a problem when you get out of the major urban centres. Some of our small business members have no bank in town any more, no financial institution in town, and even if they have one, of course that's the only game in town and then that institution can charge basically whatever they want for services. Electronic services have filled some of the gap, but especially small business financing isn't easily cookie-cut. Some elements of their financial dealings are, but a lot of them really do need some kind of human judgment brought to bear.

We're actually soon going to be making a presentation before the federal finance committee on the banking legislation that's been reintroduced, as you're probably aware, federally, and we'll be making some of these same points. But what we're concerned about is that, if anything, the relationship between the small business and the lender is even more automated now than it ever used to be. There's much less of a human element, much less of an element of the individual you know in your community actually making the decision about your business; in other words, the person who's probably best informed about your business and therefore in the best position. Credit scoring is used more and more, which is a very arithmetic formula: should this business get this loan or whatever? Figure out the numbers-no subjectivity any more, and yet at the same time the banks are talking about so-called relationship banking. You can't have a relationship when all you are is a few numbers on a page. We see this as a real negative for small firms and we're very concerned, with the coming slowdown of whatever magnitude, that we will see a repeat of what we saw in the early 1990s, and maybe even a worse reaction on the part of the financial institutions, of cutting off small businesses. This will have a big effect on the economy.

We also see bank mergers being talked about more and more in the press every day, and this federal legislation is seen by some to facilitate such things. We still have a big problem with bank mergers because we simply do not have a competitive alternative at all right now in the marketplace to the Big Five in most instances, and of course in Ontario it's worse than in most places, interestingly enough, even though we have a lot of branches around, certainly in the urban areas, but again they're all pretty much dominated by the Big Five banks. Again, we hope this doesn't happen, but we think it bears close scrutiny because it's unnecessary negativity in the economy. It doesn't have to happen, it shouldn't happen, and we're just concerned that it may yet again.

Just to summarize, looking at small business priorities in Ontario compared to the rest of the country, we do this surveying regularly with every member once a year so we get a tracking over time. The tax burden overall has decreased as an issue but it remains number one and, as you can see, in Ontario it's actually higher than the national average. Government debt and deficit still is a very important issue and I think rightly so. We saw what happened with our big debts and the deficits that added to them for years and years, and our members remain acutely concerned over debt and the need to pay down debt so we don't get into that jackpot again.

I just want to make a couple of comments about EI federally. I think Ontario has been a constructive player in keeping the pressure on federally to do something constructive with that large surplus that is growing. You might have seen one of the issues that hit the media recently which we have been harping on for years: that employers do not get rebates when they overpay. I'm sure we've been in the situation on our personal income tax where some year we might have overpaid our EI amounts and you get a refund. The employer can overpay. If they hire somebody for six months of the year and then that person leaves the job and they hire somebody else, they'll actually pay a full year's worth for two people. In other words, they've really paid for two when they've only had two halves of people working for them and they don't get a rebate. This amounts to, the last numbers we saw-it's over $1 billion anyway, major bucks involved here. I think it was $1.5 billion across the country. We put a handout in the package about this. So there is one with further detail in the package on this.

Anyway, this is a real inequity, to our way of thinking. Why shouldn't employers get reimbursed? Basically the answer is usually, "Because we need the money." That's the usual response, but that isn't good enough. There's no way people should be paying more. As we know too, we've got a huge surplus, notionally anyway, building up in that fund. So we would encourage the Ontario government to keep the pressure on the feds to reduce premiums on EI and also approach some of these other issues, such as permitting employers to get a rebate of the premiums they overpay into the system.

Just moving down to some other issues, we continue to hear about the shortage of qualified labour. We're actually going to come out with a major release next week on some data on the shortage of labour. With an unemployment rate nationally still just barely under 7%, and somewhat lower in Ontario but still much too high, there clearly are some huge structural problems in the workplace when so many of our members can't find people, and that includes provinces that have major double-digit unemployment, even in some of the Atlantic provinces, for example. So we're not just talking about there being a shortage of bodies; it's a shortage of the right skill matches, a shortage of people wanting to work because social assistance is sufficiently OK to induce people to not want to work as a result, and of course there are education issues. There's a whole plethora of issues there and no one simple solution. But I think in the future to see those gaps and to see people unemployable is a very serious social problem as well as an economic problem.

A couple of other brief issues-the whole area of technological change: We've been doing quite a bit on it as an organization. On our Web site there's quite a bit of information. There are actually courses we offer to our members on things like e-business and how important these elements are going to be to business currently and naturally in the future. Something we've been recommending to all governments is putting in place measures that can be sweeteners. There are a lot of different ways to do it. The federal government did something we thought was very positive. Well, we recommended it so of course we thought it was positive. With the Y2K issue, as you may recall, they accelerated the capital cost allowance. It wasn't big dollars at all out of the treasury. It just sort of changed the timing of a lot of tax deductions, because this was accelerated, but it was hugely positive and it was directed only at small business too. That was to help businesses get ready and counter any potential Y2K-related problems.

We see the possibility of measures that somehow would give somewhat of a tax break to small firms to get into the world of e-business as also something that again I don't want to belabour here, but something governments could contemplate. We know a lot of our members are currently hooked up to the Internet generally and are using it actively for e-mail, with Web sites and so on. We have a piece of research in the kit here on our latest data on how many members are indeed connected and what they're using it for and so on. But e-business, there's still a real scepticism about whether that investment is going to be worthwhile. So we feel there's a way to go there to change attitudes and to induce people to prepare their businesses.

The whole issue of co-operation with other levels of government we also feel is extremely important. There are so many areas that our governments just seem to be at loggerheads over. We see now a proliferation of privacy legislation across the country: something at the federal level; there has to be something at the provincial level. Why can't governments get together? I think that's a pretty good example but there are many others. We just don't see why. It seems logical to have just one thing apply instead of everybody, for goodness knows what reason, having to go and do their own thing. The whole interprovincial trade area is still a big area of stupidity in Canada, that in many instances we can trade more liberally with states in the US than we can with neighbouring provinces in Canada. There doesn't seem to be much of an agenda there to push that. We've been trying to push it but, again, everyone is in their little fiefdom and doesn't seem to feel that's much of an issue. It's a bad economic inefficiency in Canada that we all suffer from. We underrealize our potential as an economy because of issues like that.

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Another area is the whole area of health. Finally, there have been some positive moves to harmonize data on health care systems. We know there are some huge issues in that whole policy area right now that are very important to deal with. But again, we need the data. We need to know what we're talking about. We need the facts and we need to be able to compare them. Some good starts have been made there, but a lot more progress could be pursued on that front, too.

Those are just some examples. It just seems infighting among governments often, in this country, causes more problems than a lot of other things.

Finally, just to wind up, something that we've felt is a very positive theme for any government, any policy and any economy, really, is entrepreneurship as a concept. The principles of entrepreneurship are self-reliance, independence, wanting to make a contribution to society over and above simply making a buck or getting by from day to day. We see it in our membership every day. We feel an entrepreneurial thrust couched in those kinds of conceptual ways is a very positive way to look at the future. I think a lot of governments right now are looking at how we as a country, as a province, cope with the enormous changes that we're seeing in technology, in relation to other countries around the world, in our trading relationships and in our society generally.

Entrepreneurship is a very inclusive concept. Anybody can be entrepreneurial. It's not exclusive to any one group or anything. Canadians, interestingly enough, have a pretty good record as being quite entrepreneurial, but we think we could see a lot more promotion of this in public policy; in other words, not to promote policies that encourage dependence but ones that encourage independence, helping people get the jobs that are good jobs, for example, not simply having stop-gap measures. The recent loosening of employment insurance rules federally was a huge backward step, just ridiculous. We'd actually heard from our members in high-unemployment parts of Canada that they were finally finding people who wanted to work for more than four months. Now they've backed off on some of those. So very negative, backward-looking policies.

The area of tax administration is a huge issue for us. Here in Ontario we see the bureaucracy. It's one of the worst in the country that we have ever seen, and why, we're not sure. We're not sure if it's because they're in Oshawa and they're just far enough away that anybody centrally doesn't keep close enough tabs on them. We're not sure what it is, but our members face some officious absurdities from some of those bureaucrats.

We had an interesting case recently come up on retail sales tax. A member mailed in their monies; they're basically acting as tax collectors for government. This isn't even you paying your taxes as an individual, which we certainly always advocate, that people obey the law. This guy mails it in, it gets there a day late and he gets fined $1,000; never had an offence before. That kind of stuff is garbage and just shouldn't be happening. If somebody is flouting the law, fine, nail them. But that kind of stuff just makes our blood boil. Like I say, the tax administration bureaucracy here in Ontario is one of the worst in the country. and it needs action.

I know Judith has been working with some colleagues on things like a taxpayer's bill of rights and so on. It is achievable. We've seen it happen with others. We've seen it happen federally, interestingly enough, with the former Revenue Canada; now with the revenue agency, the jury is still out a little bit. We know positive change can be made, but why don't we promote a more entrepreneurial approach in the whole government sector as well?

Issues like union-only procurement: why, when we amalgamated municipalities in this province, did we suddenly broaden the whole notion of union-only procurement in the public sector? In the private sector, fine. The private sector can do whatever it wants; it's their own money. But to take one small business's tax dollars and then issue some kind of procurement contract in the public sector and say, "No, you can't bid on this contract because you're not a unionized company"-and we had many businesses that previously had had many years of service to school boards, to municipalities, whatever, in contracts. Suddenly they were cut out from being able to bid on those contracts that they're paying for with their tax dollars, another outrageous disgrace, in our view, and something that the province could act on. Certainly in the municipal domain we could see some action from the province.

Anyway, we feel I should close; I've yapped for more than enough time. But we certainly feel this whole notion of couching things in an entrepreneurial mindset probably provides our best chance to help prepare us in this province, and this country, for that matter, for the kind of rapid-paced economy, technology-driven life that we see in the business area and, frankly, in our lives in general for the next number of years. Thank you very much. I'd be happy to try to answer any questions.

The Chair: We have approximately four minutes per caucus, and I'll start with Mr Christopherson.

Mr David Christopherson (Hamilton West): Thank you very much for your presentation. Again, nice to see you. You mentioned the e-business. I just wanted to pick up on that, because I know every community, mine included, Hamilton, is doing everything it can to promote e-business. We've actually gotten ahead of many other municipalities across Ontario in terms of fibre optics. We're getting the infrastructure ready. We hear that there's still a lot of reluctance on the part of small business. What role do you think the Ontario government can play in easing that transition into e-business?

Ms Swift: None of these things ever end up being big-ticket items on the public purse. But the notion of recommending some type of corporate income tax credit, for example-again, we can talk about how that should be structured or whatever-we don't really like the notion of special treatment. Tax systems should be as equitable as they possibly can be. We feel that's the way they work the best, and once you start giving one little group special treatment, then others should get it and the whole thing gets complicated and messy. We certainly think that the Y2K example that took place federally was a huge success and, like I said, didn't cost much, but that's a possible model that could be looked at as well.

Of course, the crash of all the dot-coms was in a way unfortunate. Everybody knew things weren't going to go on forever, but a lot of people who didn't really understand why that happened turned off or became very skeptical of the whole area of "Should I invest?" This is going to cost money and time. For any business, it's going to cost money and time. Your five-person firm, which is your average small business out there-it's not huge-needs some kind of inducement.

We've found that even though it doesn't have to be huge dollars, putting something into the tax system gets people's attention on the one hand. It has an education value as well as they save a bit of money. But the education value probably is worth as much or more than even the money they save because it alerts them: "There's a tax situation I should be taking advantage of." Have it time-limited; of course, the Y2K was a time-limited phenomenon. It was time-limited, so it didn't run forever. We surveyed after the fact, and we found out 94% of our members were aware of Y2K, which is a hugely high number. It shows you what kind of success you can have with something.

I think you need to have your tax specialist thinking about how you can structure something like that that would be workable.

Mr Christopherson: The other issue I wanted to pick up on was the shortage of skilled workers. We heard it yesterday in the construction industry. I had already heard about that. That's a large issue, and you hear it from many different places, but I hadn't heard that small business per se was having trouble hiring the right kinds of skills. So I'm curious as to what kinds of skills they're looking for that aren't there-is there a trend?-and recommendations on what we ought to do to ensure that we have that kind of skilled labour.

Ms Swift: You're going to have to wait a week. We're actually releasing a very detailed report, a week today, it just so happens. Judith will be before this committee-

Mr Christopherson: This is not like a cheque in the mail sort of thing?

Ms Swift: No, it isn't, but we can't scoop ourselves.

Ms Andrew: I'll be here a week today.

Ms Swift: We're just actually finishing all the nuts and bolts of the report. But in terms of some general conclusions, it's not any one specific area. We do hear about computer skills or construction. You do hear about trades. Yes, we've heard about those, too, but we've heard about everything. We've heard about entry level, right across the board. It's amazing how broadly based this concern is.

Again, there's no one solution by any means. But I think there are education-system-related solutions. There are private sector and public sector training solutions. We've been working with the Provincial Partnership Council here in Ontario in terms of school-to-work transition, easing. There's a whole range of things that could help. Maybe that's what makes it hard, because there is no silver bullet, you know. It's not that easy. It may be more inducement to firms to train, although there already is a fair bit of activity in the training area. But some of it is quite attitudinal, some of it is willingness, hiring somebody at the entry level who basically doesn't really have a lot of job-specific skills but they're very willing to learn. And these are value sets that, again, you could see the education system having a constructive role in.

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It's not an easy one, because it is so broadly based and there clearly is no simple answer at all. But we're going to be releasing quite a lot of quite specific data, sectorally and regionally, next week.

Ms Andrew: By occupation.

Ms Swift: By occupation, yes. So we've just aggregated the data quite a bit.

Mr Christopherson: Thanks a lot.

Mr Ted Arnott (Waterloo-Wellington): Thank you very much for your presentation. My colleague Garfield Dunlop has suggested to me that we should offer our thanks to you and your members for the something like 800,000 new jobs that have been created in Ontario since 1995. I think too often the politicians perhaps take credit for that number, but really it's largely the small businesses of the province that have created those jobs. So if you would please accept our thanks on behalf of your membership, we would appreciate that.

Ms Swift: We'll convey it to them.

Mr Arnott: I want to ask you about provincial debt, and we've heard again that the provincial debt is about $112 billion. All three parties have been party to increasing that debt load. I think it's fair to say that the Liberal and the NDP parties have shown a greater tolerance for deficits and debts over their administrations than our government, but certainly our government has been in charge when the deficits have been in the province and debt has increased.

Do you think that your members think we have done enough to reduce the debt level in Ontario over the last five years, and should we be doing more?

Ms Swift: No, I don't think they do, and the chart that I have there in the package show that the deficits and debt are still a huge issue. We've seen it trend down a little bit over the last few years, but in a way it's maybe come down less than we would have thought, to tell you the truth. Our members were worried about the debt 15 years ago when a lot of people were saying, "Oh, we only owe it to ourselves." I remember those dumb arguments back then.

Interjection: That was the NDP.

Ms Swift: It wasn't even one political party. We heard it from a number of different quarters. I remember even some bank chief economists saying dumb stuff like that. It was just so incomprehensible and yet people thought you were really out in nutbar territory if you said, "Do something about the debt." Then with the miracle of compound interest, also the curse of compound interest, we saw it go kerflooie there in the late 1980s, and of course everybody had to act on it. They had no choice.

No, I don't think the government has gone far enough. Our members obviously still prioritize it right up there, and not just in Ontario but right across the board, federally too. They feel, again, it's nice to see things at least going down a touch. They're not going down enough. It hamstrings us for the future.

Mr John O'Toole (Durham): Thank you. If I may, just a quick question. You mentioned, and one of your slides included, some of the inhibitors in terms of small business challenges, and I want to focus on one area specifically in the tax factors. I know historically we've had, and you've mentioned, the employer health tax and other payroll taxes. Even in your presentation you recognized that the government has in its own direct way tried to intervene in that and also tried to intervene with the capital gains leadership. You have acknowledged that. WSIB, of course, there was a significant stranded debt, if you will, that has been argued about for a decade. I think we've dealt with that. Rates have come down something in the order of 29% on average. There's more to be done. That's the general thrust of our message.

More recently, and I think you mentioned it, what is more technical is the issue of municipal tax. I know I'm getting a lot of push back right as we speak with respect to the issue of the commercial or non-residential tax rate, and you did mention that briefly. But I think for the record, we've intervened with respect to controlling the educational portion and indeed reducing it, as you know, in the last budget, and I'd like you to comment in a very specific way to what the shift is from. Who pays for what at the municipal level? And there's the invisible, non-voting business person in that they pay residential tax as well somewhere. How can we shift that burden, and is average capping the right way to go? Do you understand?

Ms Swift: Yes.

Mr O'Toole: Because it obviously has to go somewhere. That revenue just has to go on to the residential side. I'm fighting that on a daily basis because residents on the same side say they're paying enough.

Ms Swift: Sure. Of course. Nobody ever thinks they're paying too little tax. That's part of the problem. You can theorize all you want, but even if the multimillionaire in Rosedale is paying a quarter of what the person with the modest house in Scarborough is paying-that's my mother, the person with the modest house in Scarborough-they're still paying plenty-right?-in fact, probably too much. But that is the reality.

Why has it gotten so bad? Because those are the political realities. Of course, the majority of the votes are going to strongly influence a politician's decision-making.

How do we do it? I think we have to do it awfully slowly, which is one way to do it. Another way: there's still a huge amount of waste at the municipal level. We haven't even commented on this, but we're sort of assuming there's no potential for spending reductions. Provincial governments have found ways to reduce spending. I think municipal governments can find ways to reduce spending too.

We still have things like union-only procurement, which I mentioned earlier. That adds costs. I hear school boards and whatnot beefing about the fact they have no money. They're not willing to take measures that will cut their costs, so they lose credibility as a result. Municipalities are in the same boat.

The whole municipal area is so hugely complicated, of course, it's unfortunately subject to a lot of misperceptions. The whole shift of responsibilities is usually who pays for what? We know a lot of municipalities ended up with more money in their till, but do you think they'd admit it? Of course not. They were pasting the province.

But it is a whole messy area and there are no easy solutions. I guess all we can say is that we don't see the growing inequities. Again, this government has tried to at least stop the growth of the inequities and now we would like to see a slow, managed reduction of it. Judith, sorry, do you want to-

Ms Andrew: I just wanted to add that the principle in Bill 140 of moving the municipal portion to a gradual rebalancing is a positive thing. You should build on that; you should definitely stick to your guns on that if there are any municipalities that are trying to get around that one.

The other side of the equation, the education portion which the province controls, seems to us to be the best bet for trying to get some more relief to the business sector because the imbalances are just dreadful. Our study that we produced, called the Property Tax Overdraft, looked at 25 municipalities. We've bumped that up to 70 now.

That's all available on our Web site, so for every one of your ridings that you represent you can look at the imbalances between the residents', the commercial property and the industrial property. They're just horrendous. They're holding back economic activity locally. That is jobs for those residents, so in a roundabout way you're helping your resident voters.

Mr Gerry Phillips (Scarborough-Agincourt): I've got two questions. I'll try to get them both in. The first one follows up on what you just talked about. I read your study and, on the property tax, was slightly surprised to find that businesses in Ontario pay more provincial property tax to the province for education than they do to municipalities.

In other words, in Toronto, Mike Harris collects more property tax from business than Mel Lastman does. That was the first thing that surprised me. While municipalities seem to take the heat from businesses on property tax, Mike Harris has a higher property tax rate than the municipalities.

The second thing that surprised me was the disparity across the province. If you're a business in Toronto, according to your numbers, that is assessed at $200,000, you're paying Mike Harris $10,000 in property tax for education; if you're in Mississauga you're paying $6,000; and if you're in Parry Sound you're paying $2,000-identical businesses assessed at the same rate, all set by the province, nothing to do with the municipalities. Mel takes a lot of heat but Harris is raising more property taxes on businesses than Mel is. What's your recommendation on a solution to that?

Ms Swift: I think Judith just gave it. We see the province in a very good position to be able to reduce that which they are solely responsible for.

You might recall-I'm sure you do, Gerry-the whole education thing was such a big debate, because we know it's very inequitable across the province, but harmonizing or somehow equalizing obviously would be undoable.

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Mr Phillips: Let me try and get my second question in.

Ms Andrew: You can't have a uniform rate for business across the province, as much as that might seem appealing, because that would be sharing the high-tax misery with the other people. What you need to do is buy down that education rate in the higher-taxed area.

Mr Phillips: My second question is on tax policy. I carry around with me the "Why should you invest in Ontario?" It talks about our remarkable health care and education system, publicly financed and open to everyone, and that the United Nations rates Canada as the number one jurisdiction in the world to live. The reasons for that, as you probably know, are life expectancy at birth, adult literacy and educational enrolment. The province talks about the substantial cost advantages to businesses to locate in Ontario: a $2,500-per-employee cost advantage on the health care versus the US.

Those things cost money. A $2,500-per-employee cost advantage, the way we fund health care, costs money. I think you said corporate taxes have to be lower than the US, or certainly the government is committed to 25% lower than the US corporate taxes.

Ms Swift: I think competitive, anyway.

Mr Phillips: Income taxes have to be. Where does your organization recommend we find the money to fund our health care system if it's not in the corporate tax side or in the personal income tax side?

Ms Swift: I think it can be in the personal income tax side to some extent.

Mr Phillips: If it's at the US rate?

Ms Swift: You can't have direct comparability. That's why we always say a "competitive system," competitiveness. It depends on the whole tax mix. The capital gains is one area, because of the international investment flows and the amazing facility of that in this day and age, where I think you're going to have to be pretty darn close rate-wise because that is something people put an eagle eye on. In terms of the overall tax mix, we've got some flexibility, but if you get too much out of whack, you're definitely going to have some competitiveness problems.

Right now we've got a dollar that, the last I heard, sank another 30 basis points overnight or something like that. We've got a really low dollar. That should compensate in our economy generally for some major productivity thrusts that we haven't seen enough of, in my view. Hopefully we should see them over the next couple of years and that should help our economy along.

The notion that it exclusively has to come from any one component of the tax system I don't think is necessary. You can debate parts of the mix and how they have to be comparable, but the overall environment has to be competitive.

You talk about education generally, as well. We seemingly are still viewed that way by some of these international comparisons, and yet our members see huge problems with the education system. So I don't think we should ever think we're doing well enough, even though, yes, it's better than many Third World countries, and yes, we're doing better than other countries in some respects. But to say of our education system and whatnot that we can relax, I don't think anybody believes that anyway.

The Chair: On behalf of the committee, thank you very much for your presentation this morning.

CANADIAN AUTO WORKERS

The Chair: Our next presenter is a representative from the Canadian Auto Workers. Could you come forward and state your name for the record, please.

Mr Jim Stanford: My name is Jim Stanford. I'm an economist with the Canadian Auto Workers union here in Toronto at their national office. You are familiar with the CAW. It's the largest private sector union in Canada and about two thirds of our members reside and work in Ontario.

I'm going to address the focus of my presentation today on the issue of taxes in Ontario and discussion about further tax cuts. I will slightly address issues about the general economic outlook. I'd be happy to get into more of that in the question and discussion period, especially regarding the situation in the auto industry and where the industry is headed over the next couple of years.

In talking about the tax cuts, I'm going to take a slightly different approach to the whole issue. We've obviously had some real arguments in Ontario over recent years about whether tax cuts are a good idea or not. There are strongly held views on either side and those views will continue, but both sides in that debate have generally agreed that taxes have indeed been cut in Ontario. But based on the recent number crunching I've looked at, I'm increasingly curious and skeptical about whether or not there actually has been an effective tax cut in Ontario. That raises issues about whether Ontario's recent economic success, which since 1997-98 has been very strong, can be attributed to tax cuts if we're not sure that tax cuts actually occurred.

I apologize for drifting off the side of the screen there, but folks have the hard copy in front of them if they can't see it on the screen.

The standard story about how to explain Ontario's very strong economic performance-and it was strong by any measure in terms of employment growth, income growth, exports, business investment, really across the board, with the exception of public sector activity-the typical story from the provincial government would go something like this: tax cuts spurred strong consumer spending; a combination of tax cuts and the welfare cuts spurred an incentive to work, pushing and encouraging people at the same time to go out and get a job; the businesslike attitude, a more favourable attitude toward investment and business, spurred more business investment. Then, the argument has been, if we're concerned about a slowdown in that economy, in that strong growth we've experienced, what we need are still more tax cuts to do the trick. We've had suggestions from the Premier and others in government that in fact those tax cuts may be accelerated in order to offset the concern about economic weakness.

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Looking at the evidence, though, even though there have obviously been significant cuts to statutory tax rates in Ontario, particularly in the personal income tax system, it's not at all clear that tax cuts have really made a mark in the macroeconomic data regarding effective tax rates, that is, the taxes that are actually collected by government. In fact, on average, I'll show you that average effective personal tax rates in Ontario have increased during the period of the Harris government. That's the taxes people actually pay measured as a share of their personal income.

It's very hard to argue that tax cuts have had any impact on the strongest sections of the economy, which would be investment in export-oriented industries like auto, because those industries don't sell very much of their output at all in the Ontario market. Therefore, it's especially doubtful that further tax cuts could prevent the fear of a recession, although I personally tend to agree with the finance minister's comments yesterday that concerns about a recession have been overstated.

Let's look at the increase in total direct personal taxes as a share of pre-tax income in Ontario. For 1999, the last year for which we have full data, federal, provincial and social security payroll deductions collected a total of 24% of pre-tax personal income in Ontario in 1999. That is a modest increase from the figure in 1995. The average effective direct tax rate in Ontario in 1995 was 22.7% of personal income. That, in turn, was higher than the 21.9% effective rate that was collected in 1992.

That modest increase in the average effective personal tax rate paid in Ontario reduced the disposable incomes of Ontario consumers in 1999 by about $4 billion, compared to what their disposable incomes would have been if effective tax rates had stayed at their 1995 level of 22.7%. The first figure in the handout shows the increase in that average effective personal direct tax rate in Ontario rising from below 22% in the middle of the last recession to just under 24% today. The difference between average effective tax rates collected in 1995 versus 1999 would have reduced $4.2 billion worth of disposable income for consumers. So the notion that Ontario consumers have been on a spending binge-and consumer spending has grown strongly, by $40 billion in the province between 1995 and 1999-and that that boom in consumer spending is attributable to tax cuts in Ontario isn't sustainable, because average effective tax rates have actually grown.

That's a combination, of course, of the provincial income tax, the federal income tax and the payroll taxes. Of those three, it is provincial income taxes that were cut most aggressively in terms of the statutory rates, but even for provincial income taxes, there is no evidence that effective taxes collected in Ontario at the provincial level have declined as a share of personal income in the province. In 1999, again, the last year for which we had data, the average effective provincial income tax rate in the province was 5.5%. In other words, provincial income taxes collected 5.5% of pre-tax personal income. That is down very slightly, from 5.8% in 1995. So there was a very slight decline in the provincial income tax component of the total tax bill facing Ontarians, but that was more than offset by modest increases in the federal effective tax rate, plus the increases in payroll taxes, especially CPP premiums, that we have also seen.

The personal income tax at the provincial level, that cut in the effective rate from 5.8% to 5.5% in 1999, increased disposable income by about $689 million. That's the difference that consumers had in their pockets thanks to that tiny fractional decline in the effective rate from 5.8% to 5.5%. Again, that $689 million was more than offset by the increased tax payments to the federal government and on payroll deductions. So the impact on final consumer spending must have been virtually negligible.

I stress that this is not what some economists refer to as a Laffer curve result. You are familiar with the argument that's been made by proponents of aggressive tax cuts if you aggressively cut the tax rate, the actual nominal dollars of taxes that you collect could stay the same or even grow because of the new business activity that's spurred by the lower tax rate. This is not what we're seeing here, because the evidence shows that there hasn't even been a cut in the effective tax rate, so we can't argue that it's because the lower tax rate has spurred all this business activity. Nominal tax revenues have actually grown very strongly in Ontario and, again, that would be largely because of the overall economic expansion, and it hasn't even been offset to any significant degree by a decline in the rate of taxes that is collected on that income.

The next figure in the handout shows the striking stability in the average effective personal income tax rate collected by the Ontario government. Again, this is provincial income taxes at the personal level measured as a share of pre-tax personal income in the province. Through the different administrations, and if you continued this line back to the late 1980s, you would see whether it was a Liberal provincial government, an NDP provincial government or an aggressively tax-cutting Harris provincial government, every one of them collected about 5.5% of pre-tax personal income in the form of personal income taxes. That's quite striking, quite remarkable and goes against the kind of dominant debate we've had over whether or not tax cuts were a good thing. In fact, at the ground level, where the rubber hits the road, where people actually pay, there is no evidence that there's been an effective tax cut, even at the provincial level.

If there hasn't been an effective tax cut at the end of the day when people are paying their taxes, how could that tax cut explain the boom in consumer spending? Remember, the increase in the total personal direct tax bill, provincial, federal and payroll tax deductions, reduced disposable income by $4 billion in the province between 1995 and 1999. That is a combination of a very slight reduction in the provincial share of that by less than $700 million, more than offset by the federal and payroll tax increases and likely offset by the other tax payments that individuals are paying that aren't reflected in the personal income data-things like user fees, things like municipal tax rates and so on-which have increased in Ontario at the same time.

Even that $700 million that at the most you could argue consumers had in their pocket thanks to the Harris tax cuts, that $700 million is 0.3% of consumer spending, less than 0.2% of Ontario's GDP. So to argue that it was an important factor in the evolution of Ontario's economy over the last five years is stretching it.

This graph shows a comparison of the changes in the different elements of the personal income and expenditure account. There has been a very strong increase in consumer spending in the province, up by $40 billion in five years, and that has provided a huge boost to the domestic economy. Again, I agree with the finance minister's comments yesterday that most of Ontario's growth over the last three or four years has been rooted in the domestic economy. The exports have helped, but most of it has come domestically, and this huge boost in consumer spending is a big part of it.

Note that the increase in pre-tax labour income-this would be income from employment, wages and salaries in Ontario-virtually matches that increase in consumer spending. The increase in pre-tax incomes of Ontarians virtually explains the whole increase in consumer spending. There has also been an increase in other types of income on the whole in the province, including investment income, self-employment income and so on-much smaller.

The overall change in disposable income as a result of the total tax burden on individuals-that's provincial and federal income tax and the payroll deductions-has served to reduce disposable income by about $4 billion, so it's been going against the flow, actually. Despite an increase in the average effective tax burden on Ontario citizens, they're still spending a lot more on consumer goods. The share that can possibly be attributed to the provincial income tax cuts, that decline in the average effective rate from 5.8% in 1995 to 5.5% in 1999, that's less than $700 million, and that's the $700 million indicated on the graph.

To argue that this little sliver of an effective tax cut is driving this boom in consumer spending is simply not sustainable. I know that there are some Keynesians in the Harris government here. I know it from their talk about fine-tuning the economy through tax cuts and helping to offset the economic slowdown with proactive government stimulus, but not even the most militant Keynesian could ever argue that this little sliver could drive that boom in consumer spending. If you were to calculate a multiplier effect by that ratio, you would have to say each dollar in effective tax rate delivered by the provincial government generated $70 in spending by consumers. So that's a 70-to-1 multiplier that's implied by the argument that personal income taxes in the province explain the consumer spending boom.

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How do you explain the boom, then, if not by reference to the tax cuts, which people argued about but most of whom accepted that it was there? I'm arguing that perhaps we shouldn't assume that tax cuts were driving the development. After years of stagnation, after this prolonged recession in the early and mid-1990s which had virtually nothing to do with provincial policy, either pro or con, employment and labour income in the province started growing rapidly, starting later in 1997, and 1997 was the time that the recovery really kicked into gear. That was when the fallout effects of the fiscal cutbacks at the federal level, and to some extent at the provincial level, were by and large over and the economy was being driven by low interest rates, export growth and, finally, the expansion of domestic spending.

The growth in pre-tax labour incomes, as I stress, fully explains the strong surge in consumer spending. The tax cuts of the provincial government are hard to even see in the macroeconomic data. In fact, the total provincial government tax take has grown as a share of provincial GDP in Ontario in 1999, reaching its highest level in the whole decade, reaching up to almost 16% of provincial GDP. So you've seen a stability in the effective personal tax rate as a share of personal income and you've seen an increase in the overall provincial tax rate measured as a share of GDP, which again is a kind of striking contrast to the emphasis on tax cutting that both the supporters and the critics of the provincial government have focused on.

I genuinely and honestly find this kind of mysterious. How is it that we understand the stability in the average effective rate of provincial personal taxation and the increase in the average effective rate of overall provincial taxation measured as a share of GDP? I think there are a number of factors that have been at work that have mitigated the impact of the cuts in statutory tax rates, which we know occurred, but have mitigated those statutory cuts on the actual effective rate of tax that's collected by the government.

First of all, the personal income tax cuts themselves were smaller than were often advertised, because the fair share health levy offset a significant and growing chunk of that tax cut on the higher-income earners, and that health levy now collects an awful lot of money through the personal income tax system in the province.

Secondly, you had a situation where the cut in statutory rates was offsetting what otherwise would have occurred, which would have been a gradual increase in the average effective rate of personal taxation due to things like inflation and income growth in the province, so that people were, fairly or unfairly, moving up into higher and higher tax brackets.

A third factor that I think is kind of interesting is the polarization in pre-tax incomes that we know has occurred in Ontario and in the rest of Canada in the late 1990s, the fact that the income earned by the top quintile, basically the top 20%, has grown in real terms strongly, whereas the income of lower groups has stagnated. One interesting and completely accidental impact of that polarization in pre-tax incomes is that a growing share of total personal income is received by those in the top tax brackets. That means that the average effective tax rate across the whole population can actually increase, simply because more and more of the income, a greater share of the income, is being earned by very high income earners; and since, even despite the statutory tax cuts, they pay a higher tax rate. That means that pulls up the overall effective rate at the same time as the statutory rate is falling.

For the province as a whole, the boom in corporate tax collections has more than offset the small reduction in effective personal income tax reduction. That's where you get this stable or even increasing trend in provincial tax revenues, despite the fact that the statutory tax rates have been cut especially aggressively in the personal tax system.

Looking forward, what is the medium-term outlook for the province and where does the tax issue fit into it? Again, I would generally agree with the finance minister's assessment of the economy yesterday, particularly the notion that the headlines that we've seen about the looming recession and so on are considerably overstated and likely very premature. His estimate of real GDP growth in the province of 2.8% next year is reasonable to me and in line with the forecasts of most economists and the forecast of the Bank of Canada, for example. We are obviously looking at an economic slowdown from the fast growth of the last couple of years, but a slowdown and a recession are two very, very different things, and obviously a lot of the headline writers and some of the analysts have gone too far on a limb in interpreting and extrapolating the effects of this slowdown.

There is going to be a significant downturn in auto and related industries in the next two years. That's caused by a softening of US vehicle sales, which will decline by 10% or 15% this year and stay at a similar level next year. We could see in Ontario up to perhaps 5,000 permanent layoffs in the auto assembly sector this year, and then you'll see that much and more again in the parts sector and various related supply industries. That's obviously a significant hardship for those who have been laid off, but that loss of perhaps 15,000 jobs in the broader auto industry and its suppliers is not significant enough to cause a broader downturn in the whole provincial or national economy.

Ontario's export industries, auto first and foremost, are very strong structurally. This is almost exclusively driven by a cyclical weakening of demand in the US, and I would see a recovery in most cases when US demand recovers. The one instance where there is a structural issue is with DaimlerChryser, where they're going to suffer a disproportionate number of the total layoffs. Now we have a situation where the domestic industries, driven by that boom in consumer spending-a boom which seems to have nothing to do with taxes-have a lot of momentum.

Can a tax cut help? Can we fine-tune the economy and reduce what I would already see as a small risk of an actual downturn in the province? Can we reduce that risk even further through further tax cuts? It seems quite clear to me that tax cuts did not cause the recent growth in Ontario. It's hard to even see the tax cuts in the aggregate macroeconomic data. So how could more tax cuts which you can't really see prevent a recession? The downturn that we are experiencing, the slowdown, is driven by US conditions that tax cuts in Ontario cannot affect. Unless we start taking our $200 cheques and mailing them to prospective car buyers in the US instead of mailing them to Ontario taxpayers, there's no way tax cuts can offset the downturning US market conditions, which are filtering through into Ontario, and personal income tax cannot affect the investment decisions of those key export-oriented industries. They're not located in Ontario because of their personal income taxes, high or low; they're located here because of the dollar, because of the productivity of the industry and because of the benefits they get from our health care system and other social programs. So in fact if the personal income tax cuts are ultimately reflected, as I suspect they will be, in further deterioration in the quality of our public health care and education, then I would see those personal income tax cuts harming the likelihood for future investment in the province.

Some other holes in the logic of thinking which suggests that further tax cuts will offset the economic slowdown: remember that any cut in the general income tax system delivers the maximum gain to the high-income earners who pay most taxes in Ontario and in Canada. In fact, the share of taxes paid by those high-income earners is growing significantly because their share of pre-tax income is growing significantly with the polarization, the growing inequality in pre-tax market income. So those high-income earners who get the lion's share of the benefits from a general income tax cut are going to use much of their savings from those tax cuts to offset their consumer debt, which is high, to offset their recent losses in stock markets and other financial investments. The economic stimulus that would be delivered by those tax cuts is diluted. Remember, the provincial income tax system collects just five cents of each dollar in pre-tax personal income in the province. The idea that you can fiddle around with the whole economy by playing with that nickel of the whole dollar I think, again, is taking Keynesianism to an extreme. It will be the trends in pre-tax incomes, job creation, whether or not we're getting rising incomes in pre-tax terms, that will be key.

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The time lags involved in trying to fine-tune the economy through tax cuts also reduce the effectiveness of that strategy. I think there's a growing consensus among economists of all stripes, left and right, that we should not try to use fiscal policy-activist, countercyclical, discretionary fiscal policy-as a tool of demand management. We should leave the job of trying to offset weakness or rein in an overly strong economy to the central banks. They can do it faster, in a more timely fashion, and they can do it more effectively, because interest rates are far more powerful in their impact on overall economic conditions than personal taxes are.

The reasons to either increase or cut your taxes should have to do with your thoughts about the programs that taxes fund. If you think there should be more public programs funded with taxes, you should increase them. If you don't, you should cut them. But it shouldn't be a countercyclical demand-side argument one way or the other that's used for and against tax cuts.

Just to show again the polarization of income and the resulting polarization of tax collection, this is a total for the most recent year available, 1997, total personal income taxes, federal and provincial, in Canada by income bracket. Incredibly, now, the top 2% of taxpayers in Canada, those who earn over $100,000 a year, pay 26% of all income taxes collected in the system. This reflects the fact that they are collecting an ever larger share of the pre-tax market pie. The top 13% of taxpayers-that's those earning over $50,000 a year-pay well over half, almost 60%, of all income taxes collected federally and provincially in Canada. The bottom 87%, those earning less than $50,000, pay about 40% of all taxes. The bottom 60% of taxpayers in Canada, those earning under $25,000, pay at this point less than 10% of all personal income taxes. So it's striking that the top 2% pays three times as much tax as the bottom 60%. This reflects, obviously, the progressive nature of our income tax system, but it also reflects the incredible polarization of pre-tax incomes, the growing gap in incomes between the rich and the poor.

If you cut the income tax system in a general way, with a general tax cut across the board, this top 2% will receive three times as much benefit from that as the bottom 60%. Given how much they save and what they spend their money on, even some luxury consumer spending by that top 2% is not going to offset any kind of general economic weakness.

A better approach, in my view, is to take the money that is there, reinvest it in health care and other public programs and try to enhance Ontario's advantage, which is clear in terms of the nature of our society and the programs that are there. Just to put some numbers on it, in the auto assembly sector, public health care in Ontario saves the industry about $6 per hour worked. That's what they save by being here on the health care side, instead of paying private health premiums in the US. That is a huge factor in investment decisions, and part of what explains the very strong investment in Ontario's industry right through the 1990s.

Reinvest in economic and social security measures at this point, when there's the risk of a downturn. Again, I think the risk of outright recession is small, but there's clearly a softening in the macro economy. This is the time when we've got the money to reinvest in various measures to help those at the bottom of the income ladder recoup their losses.

Just a couple of other factoids in terms of income taxes and personal taxes. There are many myths about taxes. One of them is that Canadians are overtaxed. I heard Catherine Swift say earlier she has never met anyone who says they don't pay enough tax. I'll say I don't pay enough tax, OK? Catherine has left, unfortunately. The idea that Canadians in general are overtaxed is wrong. In fact, for the worker at the average industrial wage, they pay less tax in Canada than they do in the United States, believe it or not. This is federal income tax, provincial income tax and payroll deductions for social security and other public programs. They collected about 17% in 1997-this is OECD data, the most recent available-versus 18% in the United States. Even though overall taxes in Canada are higher than they are in America, they're more progressive in Canada, which means at the average income level you pay less tax than the average-income person in America. To boot, you get public health care, public education and other benefits from that.

Taxes and spending by government, the combination of the two, play a very powerful role in reducing the growing inequality we see in pre-tax market incomes. This shows the ratio of the top quintile to the bottom quintile in Canada, and the numbers for Ontario are almost exactly similar. In market incomes, the top quintile, the top 20%, takes in 27 times as much income as the bottom 20%, and that ratio of inequality has grown significantly over the last decade, from about 16 to 1 in the mid-1980s to 27 to 1 today. This is what's driving the growing concentration of the tax burden on the high-income earner, the fact that they're getting more and more of the pre-tax pie.

The combination of income taxes and cash transfer payments, like welfare, employment insurance, pensions and so on, reduces that level of inequality to about 8 to 1. So over two thirds of the inequality is eliminated by the tax and cash transfer system, but then you also have to include the value of non-cash public services, such as health care, education, infrastructure, roads, garbage collection, policing and so on, which is a form of consumption that you don't pay money for, right? You consume it because you live in the society. Include the value of that in your total consumption bundle, the value of non-cash public programs, and the inequality ratio falls to 4 to 1. So you've gone from 27 to 1 before taxes and government programs to a 4-to-1 inequality ratio afterwards. Even that ratio is growing, and in my view it's too high, but the more we cut taxes and the more we cut programs as a result of cutting taxes, the more we're going to be looking like this 27-to-1 society instead of the 4-to-1 society.

There's a lot of international evidence that the level of taxes collected is a dominant determinant of very important social and health outcomes. I'll just give you one example here, the correlation between average effective tax rates in OECD countries and their demonstrated rates of child poverty. There are a lot of factors that explain child poverty, obviously, but over 50% of the international differences in child poverty can be explained by one variable and one variable alone: how much of their GDP do they collect in taxes at all levels of government? Countries which collect a lot more taxes have a lot lower rate of child poverty, and vice versa for countries which collect less in taxes. So again, the more we cut taxes and the programs that are funded by taxes, we're going to be steadily climbing up this hill and our already high child poverty rates will get even worse. Similar data show that taxes are systematically related to things like education outcomes, social inclusion, participation in elections even and so on.

On the whole, my verdict on the argument, "Should we cut taxes further in Ontario?" would be a strong no. First of all, we're not even sure we would notice it if we were cutting taxes. Again, the significant cuts in statutory rates, which we know happened, did not trickle through into more money in people's pockets at the end of the day. The average effective tax rate in Ontario increased for the total government sector and stayed the same for the provincial taxes. Those tax cuts would not affect investment or employment in key export-oriented Ontario industries. The personal tax system is virtually irrelevant to investment decisions in the auto industry, and if the tax cuts lead to a decline in social programs like health care, they'll hurt investment in Ontario and the tax cuts will lead to more inequality, more pressure on public services, deteriorating health and social income.

I reject the notion now that tax cuts were even significant in explaining what has happened in Ontario over the last few years. I think the lessons of Ontario's Conservative Common Sense Revolution have got almost nothing to do with tax cuts. Give people a job and give them a raise and they'll spend the money. That's what we see on the consumer spending side. The whole boom is explained by growth in pre-tax market incomes, especially labour incomes, thanks to growing jobs and, finally, rising incomes.

The government also adopted a gradualist approach to deficit reduction, just balancing the budget last year after a several-year period of economic growth, and Ontario was among the last of the provinces to balance the budget. While I disagree with the way the budget was balanced, I think that pace of deficit reduction was entirely appropriate and helps to explain why economic growth in Ontario in the late 1990s was not hampered by even more fiscal tightening, as was the case in other provinces which tried to balance their budgets faster.

Also, the fringe benefit, the spinoff benefit for public finance of an overall growing economy and job creation, which in my view had virtually nothing to do with provincial government policy, either pro or con-those trickle-down benefits for public finance are huge. The booming tax revenues that this government has enjoyed, again despite the statutory tax cuts, show there's nothing better for balancing the books than putting people to work, and that's what I and others have argued. We can argue obviously about what caused that growth in Ontario, whether it was the businesslike attitude on the part of the provincial government or some other factors, but there's no doubt that that growth was the dominant factor in the improvement of provincial finances. So that's a slightly different take on the whole tax cut issue.

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I would oppose the notion of further tax cuts, certainly not as a counter-cyclical, demand-stimulating measure, and in fact I would question whether tax cuts played any significant role in Ontario's economic history over the last few years. I'm happy to take the rest of the time for questions and discussion.

The Chair: Thank you very much. We have approximately six minutes per caucus and I'll start with the government side.

Mr O'Toole: Thank you very much, Mr Stanford. I know your premise when you started was to basically discount the importance of tax cuts. I'm going to start. With more time, I'd certainly-I believe the term "evidence" is used incorrectly. I think the premise of your paper is absolutely in error and I will try, in a couple of minutes, to give you some reasons.

Just to legitimize my point of view versus yours or some other person's point of view, Chrétien, when he was speaking at a university in the States recently, said to Mr Clinton at the time, "Our tax system is now competitive with the" United States. "If you look at Ontario, the income tax in Ontario, provincial and federal together, is competitive with New York and Michigan, California.... But the payroll tax in Canada is much lower than in the US." But he went on to attribute most of the increase in fact to tax policy, which is absolutely the reverse of what you said.

I think your premise is faulty because it attributes much of the impact on GDP or in the growth of the economy to the wrong factors, of actual consumer spending. The minister yesterday indicated domestic spending is growing, but he also indicated, in a micro way, that the business investment climate, which you haven't addressed at all, was the most important driver, at 17.8% of the net effect. He did attribute that actual consumption was only 4.3% of the whole equation, which really kind of helps to support your numbers.

But I think even if you look at the terms you use, which in themselves are part of the problem with your data, you use the pre-tax personal income tax as a reference point. What you fail to do is recognize the relationship between the provincial rate of tax, which is a per cent of the federal tax, as well as the mitigation of the clawbacks through personal income tax and payroll tax, payroll taxes being CPP and UI. The precipitous effect of that is they did in fact-and you've substantiated that in your paper-basically recognize that for every dollar we gave back, they took a dollar, either in CPP-that's a tax on jobs. That's the general term we use.

But when you actually look at the whole phenomenon of the tax cuts-I think these are well published, well documented by economists. I'm just reading them. In 2001, a family of two, with an income of $60,000 from two earners-these would be the people who pay the lowest rates, you've said that, or contribute the least to the amount of revenue from personal income tax-will save $1,865 in Ontario personal income tax, or more than 40%, as a result of our government's tax cuts. There's no question with respect to our ability to contribute to disposable income-it's defined by our attempt now to divorce our tax rate from the federal rate of tax, because we couldn't clearly demonstrate on the pay stub that they were actually getting more money in their pocket. We could show the net impact, but the federal government by and large clawed it all back.

In your premise again I won't accept your data. I'd prefer to look at the ministry data from the OECD statistics in 2000: "Canada has the highest personal income tax rate in the G7 nations." That's the number there and that's the number I would believe. Yours has been crafted in a way to discount any impact of the Laffer curve.

This isn't a lecture, but I've sat and listened politely to you. I really feel there is an opportunity for you to present real evidence. You used the term but I haven't seen any. There is an opportunity for you to participate differently in the income tax process. There is the Ontario opportunities fund where you can check it off and not get it back. In your case, based on the fact you're an economist and would be making more than $60,000, you would probably be getting a larger tax break, as you've demonstrated in one of your charts, because clearly you've said that the higher your income, the higher tax you pay. About 85% of the tax is paid by about 15% of the people, if you're looking at personal income tax. You have completely ignored the corporate tax implications which might explain some of the growth in the GDP, that is, foreign investment, which is the global kind of interpretation that not only Chrétien started with but every country in the world recognizes that to be competitive it all starts with the investment and what the potential returns are on that investment. Business as usual-probably.

I wouldn't consider myself a Keynesian economist by any stretch of the imagination. I think what we try to do is create the right business investment climate, and I think the federal government has a role to play in that as well.

You can respond or whatever the time permits. With some respect, if I could soften my overall critique, it would be by saying that basically you're entitled to present the data. I would just hope the evidence would be a lot more comprehensive than what I see before me.

Mr Stanford: Thank you, Mr O'Toole. In terms of the evidence in the paper, it is all from official public sources. The personal income tax data comes from Ontario budget documents. The overall personal income and tax and consumption spending comes from a Statistics Canada survey of personal income and spending. I would be happy to provide any of the background data.

There is a startling difference, as you emphasize and as I emphasize, between this evidence of the stability in the average effective personal taxation in Ontario and the cuts in statutory rates which we know occurred. The example that you gave of the household at $60,000 is one of the hypothetical examples that is provided in your budget documents, and the federal government does the same thing, about how much they should save, in theory, based on the cut in statutory rates. But the conflict between that and what we see in the actual evidence of personal incomes and spending suggests that those cuts in the statutory rates, for various reasons, some of which I've tried to hint at, are not trickling down to people at the end of the day.

Anecdotally, when you talk to people in Ontario, even well-paid auto workers, who get probably a couple of thousand dollars per family in your tax cut, have a hard time saying, "I actually notice it." Some of these other factors explain why Ontarians don't notice the average effective tax rate at the end of the day, because it hasn't actually changed.

In terms of the federal and payroll taxes, actually, for every dollar you gave back, according to my data, the federal and payroll taxes took $6. They took $6 more out of the system for every dollar you gave back. The point is that you gave almost nothing back. Effective personal income taxes in Ontario were only $700 million lower in 1999, as a result of the very fractional decline in the average effective rate. That again runs up against the hypothetical question, when you look at the statutory rates-if statutory rates had stayed where they were in 1995, you would have collected $6 billion or $8 billion more. So that's the value of the tax cut that everyone, pro and con, has been using in their argument, but effectively, I am saying the tax cut was almost invisible.

In terms of the corporate tax issue, the large corporate tax cuts haven't even happened yet, so we obviously can't explain the experience of the last five years. Maybe the businesslike attitude of the government has something to do with it, but we haven't even seen the large corporate cuts yet. I personally would be a lot more sympathetic to a corporate tax cut than to a personal tax cut, precisely because it does have an impact-I don't think a dominant impact-on investment decisions, which are, I agree, what has been driving the economy.

The Chair: The official opposition.

Mr Phillips: I appreciate your presentation and some new approaches to looking at the numbers. I commend you for doing that.

I have just one simple question. We are all trying to wrestle with simple issues such as, how much is the economy likely to grow in the next couple of years? That gives us some indication I think of job growth and whatnot. Have you got a point of view on that?

Mr Stanford: We don't create our own actual forecast. We obviously follow it, because our members' incomes depend on it, just like your public finances for the provincial government depend crucially on it.

I think the current consensus view of economists that the rate in Canada is going to slow to somewhere between 2.5% and 3% seems reasonable to me and in line with the hard numbers we're seeing in employment, which has continued to strengthen, actually. Even the January jobs numbers were a good sign. The total of all level of employment didn't grow, but you had an increase of 50,000 in paid employment that was offsetting a continued decline in self-employment, and most paid jobs are much better than self-employed jobs.

So of the hard numbers that we see from the employment numbers, from the trade numbers and from the monthly GDP numbers, none of them suggest we're actually looking at a recession; we're looking at a slowdown from a 5% growth rate to perhaps a 3% growth rate. That's the view of Mr Dodge at the Bank of Canada. They obviously have their fingers on the numbers even before we do. I don't see any reason to expect something worse, although we obviously are concerned that there's a risk.

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Mr Phillips: Just to calm Mr O'Toole down slightly, when you said most paid jobs are better than self-employed jobs-some self-employed jobs are pretty good.

Historically, I've tended to agree with the Conservatives on how you calculate the forgone revenue from tax cuts. Most economists who have presented to us use a formula. They say if you don't change any tax rates, tax revenue will grow roughly at the rate of nominal GDP-roughly. They'll hedge it; they'll say "roughly." I've always looked at the government's tax numbers, and they say, "If we make these tax cuts"-and they've used different language-"there will be this benefit to the consumer, there will be this lower tax revenue coming in," whatever. But some language will say, "If we make these tax cuts, revenue, instead of being over there, will be here."

Actually, the numbers I've looked at over at least the last five years suggest that formula still is about right. I think the first tax cut by the government was designed to reduce tax revenue by, in 1996 terms, $4 billion a year. Sure enough, if you do a calculation of what the personal income tax revenue was before the tax cuts, you inflate it each year by the nominal GDP and you subtract the $4 billion, you've got what came in.

I've always accepted that the numbers the government uses for forgone revenue were accurate. In other words, if the economy had grown at the same rate-and you could argue that wouldn't happen without something, but if they grow at the same rate-personal income tax revenue would have been $4 billion higher; with tax cuts, it's $4 billion lower. So I accept the numbers whenever they show a cost to the tax cut. You've come at it from quite a different approach, using a different set of statistics from most economists'. I looked at the federal numbers, and I'm not sure whether the CAW participated in the development of the federal economic numbers when they had private sector-

Mr Stanford: No, we were not one of the ones they asked.

Mr Phillips: OK, but they too use nominal GDP. Why would that approach, that tends to be used by most economists, not continue to be at least a legitimate way of looking at it, and why would your number be so different from the one that, as I say, is used by most of the economists who present to us?

Mr Stanford: That's a very interesting question, and I'm still asking myself the question. I would have traditionally followed that approach as well: make the assumption that in the absence of a proactive change to tax policy, your revenues will grow at the same rate as your nominal GDP.

In practice, the evidence over the last decade suggests your revenues will actually grow faster than nominal GDP in the absence of proactive tax policy measures because of things like bracket creep-which is not going to be a problem now, but apparently was a significant question in recent years-and because of certain aspects during a period of expansion, where tax revenues are pro-cyclical, that is, they would grow faster than nominal GDP. Corporate tax revenue is an important tax that grows faster than GDP when it's growing and falls faster than GDP when GDP is falling.

Clearly, there has been a forgone cost to that statutory tax rate. I think we can, using that traditional methodology, say that without those cuts in statutory personal income taxes, the government would have collected $6 billion more per year, or $8 billion more per year, or whatever the formula gives you. Then there has been a cost to those tax cuts in terms of what the government could have done with that money if it was collecting it.

But what's interesting to me is that what at most they've done is stopped personal income taxes from growing as an effective share of pre-tax income. Again, you can argue whether it would have been good or bad for income taxes to grow as a share of pre-tax income. What you can't argue is that at the end of the day, when the money gets into your wallet, consumers have more spending power because of the tax cuts.

Mr Phillips: We can or can't argue it?

Mr Stanford: You can't. You can argue they may have more spending power than they would have had without the tax cut, but relative to the spending power they had in 1995, provincial taxes took 5.8% of that money before they had a chance to spend it. Today, they're taking 5.5% of that money before they have a chance to spend it.

To argue there's been a boom in consumer spending from 1995 to 1999 because of the provincial tax cuts is not sustainable. By the time those statutory rate cuts which occurred get translated into effective tax payments, after everything else is considered-the linkage to the federal tax system that Mr O'Toole mentioned, inflation and income growth which push people into higher brackets, the polarization of pre-tax incomes-all of those factors meant the average effective rate paid in 1999 was virtually identical to what was paid in 1995. That's not to say there hasn't been a cost to the tax cut, certainly, but to argue there's been more spending power because of the tax cuts I don't accept on the basis of this sort of alternative evidence.

Mr Christopherson: Thank you very much, Jim. As always, a stimulating presentation. For some of us it's like oxygen to hear some suggestion other than just that the tax cuts are responsible for what's happened. I would just put in a plug that for anybody who wants to follow a little more of your thinking, reading Paper Boom, your book, is an excellent step. I would urge anybody listening to grab that.

Mr Stanford: That's very kind. I didn't pay him to say that.

Mr Christopherson: No, you didn't. I didn't even bring my book to be signed, which I meant to do.

What I want to focus on a bit is a combination of both economics and then just some straight politics and your thoughts on that. Right now, I think you make an excellent argument, especially the argument about health care, when you talk about how a better approach to the health care system saves $6 an hour in the auto industry and that that differential is a huge factor in the amount of auto production in Canada, especially in Ontario, and the same with all our other social programs. If you take the argument that the only way to have the kind of health care system we would like, the social service system we would like, environmental protection etc, is to reinvest money in there-at the end of the day it's going to take more cash to do it-when you make that move from an economic discussion to a political one, you're left going door to door on a platform that says, "Vote for me. I'll raise your taxes." You can always argue it's just education, and go out and do the politics, go out on the hustings, that sort of thing, but it really creates a dilemma for those who want to make that investment when you take a look at the current political climate that has a large portion of middle class working folks buying into this argument.

Attached to that, I would ask you, if you had the opportunity to set the next budget, particularly in terms of tax structure, what sort of significant changes would you make in terms of reorienting the tax system from where it is now under Harris to something that supports the factors that you think are more important for the vast majority of people? Any thoughts on those two things? I know it's not an easy one, but your thoughts would be appreciated.

Mr Stanford: Take an auto worker, for example, who, if they're in the assembly sector, is making $60,000 a year, so they fall within that group, that top 10% of taxpayers who pay 60% of all taxes. On the one hand, you hear from them often the thing that they don't really notice, the tax cuts they've gotten, even though when you conduct the theoretical simulations they should have thousands of extra dollars in their pocket. It's interesting to explore and find out that that anecdotal response is actually consistent with the evidence that their effective tax burden has not fallen. That would give some cause for skepticism among even those people who are in the top 10% of the population for the tax cuts which have aimed most of their benefits at the top 10% of the population.

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On the other hand, if you also went to that person and said, "We want to raise your taxes," there's no doubt-and as much as I'll stand here and say I don't pay enough taxes, most of my membership wouldn't view themselves in the same context and it does become a tough situation. That's why I would focus particularly on trying to preserve the current tax base that is there. I don't believe at the end of the day that it's actually a lack of money that's stopping this government from reinvesting in those programs that need those reinvestments-I agree with you entirely-and barring an outright recession, which I don't think is going to occur, they are going to have more and more money all the time to make those reinvestments.

The bigger fear for me is not how you convince people that we should raise their taxes; I'm not yet convinced we have to raise their taxes to get the money to do it. If it turns out that even the benefits of economic growth, which absolutely have created a sea change in the state of public finances here, are not sufficient to deliver the money you need, then at the end of the day you have to go out and convince people that, yes, they should pay a little bit extra for those programs. That task will be a lot easier when their incomes are growing anyway in the context of a vibrant economy.

I always find it amazing that the 1990s were the first decade when effective tax rates in Canada did not on the whole increase over the decade, yet that was the decade when the tax revolt started. In the 1950s, 1960s, 1970s and even the 1980s, effective tax rates in Canada rose dramatically and quickly, as we funded for all these new programs. There was no tax revolt I think in part because people recognized the value of those programs, but also because their pre-tax incomes were growing fast enough; they still had more money in their pocket at the end of the day despite the tax increases. The key factor will be to maintain a vibrant macroeconomic environment where you can kind of painlessly get the revenues, whether you're increasing taxes or not, to finance those needed reinvestments.

The Chair: Thank you very much. We've run out of time. On behalf of the committee, thank you very much for your presentation.

Mr Stanford: Thank you for the time and for your comments. I appreciate that.

PEOPLE FOR EDUCATION

The Chair: The next presenter is representatives for People for Education. Could the spokespersons come forward and state your names for the record, please.

Ms Annie Kidder: I'm Annie Kidder and this is Gay Young, and we are from People for Education.

Ms Gay Young: People for Education is very pleased to be here this afternoon. We are a parent group. We have a network of parents around the province, and we're parents from both the public and Catholic systems. We have been working for the last five years to try to advocate and protect for fully publicly funded education here in this province. Happy Valentine's Day to all of you.

Over the years we've done a lot of research and we have a tracking project that has been going out and surveying elementary schools across the province. This is our fourth year now. Last year we had 940 schools participating, so we've learned a lot about many of the changes that have been made to schools. We've made lots of presentations over the years to you in different committees and different areas and we hope today especially that you will listen to us with your head and your heart, especially as it's Valentine's Day. We are here because we are passionate about our children and the children in this province and we're passionate about our publicly funded education system and we want to make sure that it's serving each and every child as best it can in this province.

Ms Kidder: We've been tracking elementary schools for the last four years. This is the 2000 tracking report. We've gone through it and we have estimated costs for reinvesting money-and these costs are actually direct classroom costs, as defined by the provincial government-back into the classroom to correct some of the funding shortfalls that we're finding in our tracking report. I'm just going to go through them quickly and then you can ask questions.

One of the first things we found is that there are nearly 35,000 children in elementary schools on waiting lists for special education services. That list is broken down into three things. They're waiting for three different things. Some of them are waiting just for identification, to be assessed, that is, by a psychologist. There's been a huge drop in schools with regular access to psychologists. To get those kids off the waiting list would cost $9 million.

There are children waiting for IPRCs, which are identification, placement and review committees. That would cost half a million dollars. There are children waiting for placements, which would cost $19 million. There's actually a mistake in this. This was done very quickly this morning. I can see a mistake already. The total cost to bring all of the children off waiting lists for special education-I'm going to have to add in my head here, there seems to be two of these; you add them and I'll tell you-is around $70 million. These are children who are not getting the services that they need for special education.

There has also been a drop in the number of schools with full-time principals in the province. This is happening because of a gap in funding for small schools, a gap between what is considered a small school and what is considered the number of students that you need to generate funding for a principal. Only 85% of elementary schools now have full-time principals. That's a drop of 10% in three years. To ensure that all elementary schools have a full-time principal would cost $26 million. It's a necessary thing in schools for them to have principals.

We are seeing librarians disappearing out of elementary schools. Now 10% of the boards don't have librarians in elementary schools. Librarians are very important for information technology, they're very important to coordinate all of the curriculum in schools, they're important for teaching kids how to do research, and it's important that they are teachers. To make sure that for every 350 students there is one full-time librarian would cost $116 million.

Only 37% of our elementary schools have phys ed teachers. Phys ed is a very important part of the new curriculum. To ensure that for every 400 students, or every school over 400, there is a full-time phys ed teacher, which would give them phys ed twice a week, as is stipulated in the new curriculum, would cost $102 million.

Only 56% of elementary schools have music teachers. It's another very important part of the new curriculum. To ensure that children have music once a week you would have to have 0.5 of a music teacher for every 400 students. That would cost an additional $29 million.

This is money that's been cut from the system going back into the system to correct these losses.

There's been a 24% drop in ESL programs in only three years. To correct that drop and bring it back up to the levels of 1997 so that for every 24 ESL students there's a teacher would cost $31 million.

These are not huge amounts of money considering the surplus that we had last year.

A really big problem in schools in Ontario is the gap in funding between what qualifies for small-school funding and what qualifies to get you money for a principal or even for a secretary. What happens is, if you have under about 140 students in your school you qualify for small-school funding. But you have to have 364 students to generate funding for a full-time principal. So there's this huge hole there. Half of the elementary schools in Ontario are in that hole; 50% of the schools are too big to qualify for small-school funding and too small to generate funding for a principal. This is a real problem in the funding formula and it's a problem that has to be fixed. A third of those schools don't even qualify for funding or don't generate the funds for even a secretary. So we have all of these schools in the middle there, a huge number of Ontario schools, that don't qualify for funding, that fall between two stools, I suppose you could say.

What we're suggesting is that we up the number for the small-school formula, that we say that schools of fewer than 250 students qualify for small-school funding. That would add an additional 920 elementary schools. We are estimating the cost based on what you get for 100 students. We're saying, OK, fine, give the same amount on top of your per pupil grant. That would cost an additional $67 million.

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Because these numbers that I've just said here are just for elementary schools, we then looked at the per pupil cost that would mean for elementary schools, the additional per pupil cost. It's only $343 more per pupil to correct these severe problems in elementary schools. Then we looked at how many secondary school students there are. We know that the cost per pupil is about 10% more, so we've estimated that the cost to correct these problems in secondary schools-they also suffer from problems with small schools, problems with administration, problems with librarians, problems with special ed and problems with ESL-would cost another $252 million.

The following totals were for both secondary and elementary school students.

Textbooks: over 65% of elementary schools report that they are using worn or out-of-date textbooks. We know that in the funding formula you get $75 a year for textbooks for elementary schools and $100 a year for high schools. There was an additional grant made for the grades 9 and 10 new curriculum in high schools of $30 million per year. That grant didn't include any money for teacher manuals, and it doesn't actually cover the costs of all of the subjects taught in high schools. It's not enough money. What we've estimated here then is that in elementary schools, so that kids aren't having to share textbooks-they also have a whole new curriculum-we need another $22 million. We need the teacher manuals to go with the new curriculum and the new textbooks for grades 9 and 10. That costs $13 million. Then we need the right amount for textbooks for the new grade 11 curriculum starting in the fall. This is a one-time cost of $73 million.

Another big problem that's happening and that we know from how many schools are closing in Ontario this year and last year-they're closing for one reason: because they're too small to fit in the funding formula. The other reason they're closing is in order to generate new pupil places. The schools in your board have to be over 100% capacity in order to get money for new pupil places. I talked to one board director who talked about banking those new pupil places. He said they're kind of like air miles. The only way you can bank those is if you have some schools that aren't full in your board. You have to close those schools so that you make sure that you're at or over-you have to be over 100%. For every pupil over 100% you are, you get your new pupil place funding.

What's happening in a number of boards where they have high-growth areas, no matter how far they are from the other areas that are not growing, they have to close the schools in the areas that are not growing in order to put schools in high-growth areas. There was just a perfect example of that on the front page of the Star this morning, of a school that had something like 33 portables because it was in Toronto and we'll never get new pupil places.

This is a very, very conservative estimate here. We just took the 45 schools that are closing in growth boards: nine of those are secondary schools and 36 are elementary schools. We costed $25 million each for a secondary school and $3 million each for an elementary school. These really are conservative numbers. In order to save those schools from closing, either by reducing the capacity amount, which is to say make it the same as it for maintenance-there was a change made in the funding formula that you were topped up after 80% for your maintenance costs. If we did that for new pupil places as well or else did what the Education Improvement Commission recommended, which was to make review areas, so you weren't in this insane position of having to close schools in one place in order to build a new school in another place that was very far away, would cost $333 million.

Transportation is a very unsexy issue but it's a disaster for boards right now. There is no transportation funding formula at all. The money that boards are getting for transportation is based on what they were spending in 1997 minus 3%. Gas prices have gone up 38% since 1998. So just for gas prices-we didn't estimate anything else in this-just to compensate for the cost of gas prices going up would cost another $87 million. We have kids, we know from our tracking report, who are on buses now for three hours a day because their boards don't have enough money for the buses that they need. I know that the education finance people are working on the transportation funding formula but what's happening now is boards are being left in a position of having to take that money from somewhere else in order to get their kids to schools.

And this is leaving out many, many things. It's leaving out the fact there aren't enough guidance counsellors in high schools. But this is the basic desperate need for right now. This would cost another $600 per pupil, the average between elementary and secondary school students, which would cost a total of $1.19 billion to put this money back in schools.

We know that there's been no money for inflation over the last few years, that schools and boards spend all their time now robbing Peter to pay Paul. Every single school in Ontario at this point is in a position where every time they spend money, they have to think about where they're going to take that money from. These are very, very basic needs in schools. These are not extras. We're not talking about more programs here. These are things like 35,000 children waiting for special-ed services. These are the kinds of costs we're talking about in here.

We really encourage you, when you're looking at the new budget for this year, to use some of the surplus. I just listened to a paid political ad on the radio, as I was frantically driving here, which was from the Conservatives and talked about dreaming about our future and a vision for the future. It seems to me the most important part of that vision for the future is that we adequately educate our children, we make sure that our children have a fair chance to succeed in the world, that this is the most important investment we can make for our future. If the Conservative Party, as they are forming their budget, are interested in the future and a vision for the future, this is the most important investment they can make.

The Chair: We have approximately three minutes per caucus. I'll start with the official opposition.

Mrs Sandra Pupatello (Windsor West): Thank you so much for your presentation. I wanted to touch on one element that you mentioned in terms of the small schools, the building of schools, and that is the off-loading from the provincial government of debt so that the finance minister could come in the other day and say what a glowing report we have with the Ontario finances. But the reality is that school boards now are facing significant debt, in particular around the capital costs of building schools.

There were a number of policies that are working together to create a climate. The merging of various school boards meant, in almost every case in Ontario, the merging of largely rural boards with urban-based boards. That meant necessarily that when it comes to school closure decisions, the inner-city schools are going to be the ones with population changes. In Windsor-Essex county, and the same is repeated right across Ontario, those inner-city, old schools are not as full because of the growth in suburbia, and those schools need to be built. Ultimately, our boards are deciding-in one board alone, eight schools inside Windsor are slated for closure, but the outside schools in the suburban areas need to be built.

They talk on and on about SuperBuild and how people can access capital money. What's happened with school boards is they need to fund the building. Whether their operating dollars will be increased to account for the financing of that money, nonetheless, the board is assuming the debt of that capital project. That means the government may finance it over time, but the debt is moved from the provincial books to the school board books. What the Minister of Finance confirmed for us yesterday is that this method and this tactic will continue. That means municipalities, school boards and hospitals are all now assuming debts that would have been on the provincial books and are no longer.

I just wondered if you'd speak to that, because there are many, many policies over the course of the second term and the first term of this government in education policy that ultimately are resulting in the kind of financial crisis we have in schools.

Ms Kidder: I think that's why, when we were looking at that problem and understanding that what it means is incurring all this debt, it seemed to us that the best solution was to change the formula so that you start to get the money for the new pupil places, for one thing, when you need them, not after you're already in a disaster, and that you don't have to borrow the same amount of money. Especially, it doesn't mean that you have to close schools in order to do it.

What we would recommend would be that we change the formula so that you don't have to be at 100% capacity, that the idea of review areas is looked at, but also that the 100% capacity is changed to something more reasonable, like 85%; even 90% would make a huge difference to those schools closing. It will mean more money and it needs to be more money in the formula, not more money that you are allowed to borrow over time, which is the way it is right now, because you're right: you end up with this enormous debt over 25 years in order to fund 2,000 pupil places.

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Mrs Pupatello: Moreover, the school boards are now cleverly reviewing where they can find money in a formula for the addition of a portable. That they can find in a funding formula, so decisions they're making around school closures often mean they'll close a school only to put two neighbouring schools completely over capacity, but that's OK because the formula will allow them to purchase a portable in order to do that. And yet that capital cost of a portable cannot be applied to the purchase and building of a school.

Ms Kidder: But also for parents and for students, the bad part of that is that it means it's actually worth it for boards to create overcrowded schools, which is not what we want for our children. That's the real part where that falls down. We don't want overcrowded schools, and we're seeing that in Ottawa and a lot of places. We're creating these hugely overcrowded schools and you also create huge divisions among population of parents because they desperately need schools in high-growth areas.

The Chair: Mr Christopherson.

Mr Christopherson: Thank you very much for your presentation. I want to thank you for the work you do. It makes a difference. I don't know if it always feels like it, but it does. I can tell you, listening to your comments as you went through all these issues-Sandra's already mentioned it reflects what's happening in Windsor-it's like you were singing from the song sheets out of Hamilton, exactly the same thing.

When I sit down and talk with Ray Mulholland, the chair of the board, or Judith Bishop, the trustee in the major area of my riding, the notion of robbing Peter to pay Paul is going on constantly. What I just want to underscore is that your message is so important because it's reflecting the reality of what's out there, as opposed to a pie-in-the-sky vision that the government likes to paint as what's happening, and it's not.

You mentioned that there are some children on the bus for three hours. Transportation, like everything else in here, is a huge issue in Hamilton, especially since we've now merged and it's a much larger geographic city. Three hours: is this in the Toronto area?

Ms Kidder: No, this is provincially. A lot of these are special-ed kids. They are kids whose programs were cut in their school in their small town. There are kids who are going to Thunder Bay for programs from very far outside of Thunder Bay. It is especially rural areas that have suffered most from the busing problems. Ironically, one of the things that has happened in some areas is that late buses have been cut because of transportation costs, so there are no extracurricular activities in secondary schools in quite a few boards because of cuts to late buses. But our concern is that when we're looking at the transportation funding formula we take into account how long children should be on buses. I'm 47 years old and I wouldn't go on a bus for three hours every day to go to work.

Mr Christopherson: Exactly. You mentioned special ed; again, this was a huge issue in Hamilton. We've still got children who are not in the classroom and yet, prior to a lot of the cuts, they were. I've had mothers in my office in tears, saying, "What am I going to do?"

At the end of the day, the only thing that's going to change that is for the government to change the funding formulas in the way that you've mentioned here. The principal issue, the text book issue, the closing down of schools-they're shutting down Scott Park high school and Allenby school, a beautiful, excellent, inner-city community school. It's the heart of that little neighbourhood. It's a small school, but it makes such a huge, fundamental difference to the quality of life of the children and to the families in that area.

Again, for a government that says they care about families, just like their labour legislation that works against supporting families, they've got an education funding formula that doesn't support kids and doesn't support families.

I don't have any more questions. It enrages me, and I'm just so thrilled that you were here and that you hit all the key issues. I just urge you to please keep speaking out, raise the issues, because at the end of the day it means more that it's coming from parents than politicians or teachers, or trustees for that matter. It's the parents who can make a difference.

Ms Kidder: We are very concerned about the kids who aren't in school at all. For instance, I know a mother whose son has Tourette syndrome. He only qualifies for 50% ISA funding. She says, "It's as if they think he's got Tourette's in the morning and suddenly at lunch he's cured." So in the afternoon he just can't be in class. He cannot be in class without an educational assistant. He sits in the office, if they have time to take care of him, or he stays at home.

There are lots of kids, there are kids in my own children's school, just waiting even to be in the learning centre so they get extra help. There are 30 kids on the waiting list just in my children's school to get into the learning centre. These are kids who could be helped, who will be saved much bigger costs later on to all sorts of different things: to our justice system, to our health care system, to everything else. It's a very important investment that we have to make in special ed, and it affects every child, not just the children who are in special ed.

Mrs Tina R. Molinari (Thornhill): Thank you very much for your presentation this morning, for the work you do on behalf of parents and students in Ontario and for some of the studies you've conducted. Recently I read in the paper about the national study that claims that Ontario's high school teachers are not being asked to work more than teachers anywhere else in the country. So it was interesting to read that article. Also at the Ontario Parent Council regional forum, which your members participated in and attended, it was good to see some of the comments that were expressed there and some of the things we're doing with respect to parent councils and the regulations that are very supported by your group. So thank you for some of the work you do.

I want to talk about some of the issues you've raised. There are several, and time is limited, but I would like to focus on special education, which certainly is one that is near and dear to my heart. Having been a school trustee from 1988 to 1999, and having been chair of that board and also chair of the special education advisory committee for three years, I have seen a lot of changes within special education.

The funding model is evolving. Because of the intricacies of the special education child-and no two children are alike-it's an area that needs to be reviewed constantly and that our minister has committed to reviewing. There's a review happening now, as a matter of fact, on some of the funding for that, to see how we can improve some of that funding.

I also wanted to comment on some of the points made about the off-loading of the debt. When the funding changes were made, all of the debts that the school boards had were assumed by the province. Because the boards no longer have taxation ability, the province assumed all of the debt load. So the school boards are now given per pupil funding for the services they need to provide.

With respect to school construction, being from York region and having been part of the York region Catholic board, there have been a number of times where the school trustees sat around the board table arguing over which school would be built first and putting together our CEF, the capital expenditure forecast list, which was one time when trustees fought for parochial areas against each other. Because of the way the capital funding formula was done, boards had to submit a CEF list to the ministry, and then the ministry would go through that list and choose. They wouldn't always choose our number one priority; sometimes it would be number five. So the local autonomy of individual school boards was taken away. The funding formula now provides for a dollar amount per pupil that boards have in excess of student space. So it allows the board, year over year, to put that money into an account or into an area where, when they see fit to build a school in a specific area, they will be able to have the authority, the autonomy, to do that.

Transportation is another issue that is ever evolving. Having been part of a board that co-operated well with our local coterminous board, York region developed a very comprehensive plan for sharing of transportation services. Before the new transportation funding model was introduced, there weren't any incentives for boards to find efficiencies in transportation. More money was given if you got a 72-passenger bus than a smaller bus. Now, the way the formula is done, it provides more efficiencies. It encourages boards to find efficiencies. That in itself is also ever evolving and there are talks going consistently with the transportation companies because we realize there are changes that need to be made. Whenever changes are introduced, it evolves and you need to keep reviewing how those are being implemented and the benefits of them, because in the end what we want is to best serve the students in Ontario and to assist the boards as much as we can in doing that.

The Chair: You're going to have to put your question, Mrs Molinari. We're running out of time.

Mrs Molinari: I don't really have a question, Mr Chair. It was to clarify some of the comments that were made, based on a number of experiences that I've personally been involved in. If I've taken up all of my time, I thank you.

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Ms Kidder: Can I answer?

The Chair: Absolutely.

Ms Kidder: On the transportation, there is no formula for transportation right now. It is based on the 1997 amount. The problem that happened there is that the boards that were efficient and did make cuts and made sure that they actually bused kids with their coterminous boards were penalized just as much as the boards that hadn't. Some boards-Avon Maitland, I know, for one-especially those boards that actually tried as hard as they could to be very efficient, were penalized, were cut just like all the other boards. They felt they got a double cut there. But there still isn't an actual formula.

I understand the reasoning behind the capital costs, but the problem with it is that because of the 100% capacity rule, because you have to be more than full before you start to generate new pupil places, you must close schools in other areas. The Education Improvement Commission, which was put together by this government, expressly recommended that that be changed so that boards weren't in a position of closing schools in Dryden so you could have a new school in Kenora or vice versa, so that you weren't closing schools 100 kilometres away from a place where they needed new pupil places. I think that is our problem with the capital one.

Special ed: I know the funding formula is being worked on. All we're saying is that the reality is there are 35,000 children waiting for services. Even with new funding formulae, that needs to be corrected so that we can at least start off all right. What we did was estimate the cost for that, which is actually $53 million, because one thing is in there twice. It's just to get those children off the waiting list for special education. Then when we start with the many new formulae, as we come up with them, at least these kids aren't disadvantaged.

The Chair: On behalf of the committee, thank you very much for your presentation this morning.

ONTARIO HOME BUILDERS' ASSOCIATION

The Chair: Our next presentation is from the Ontario Home Builders' Association. Could the representative come forward and state your name for the record, please.

Mr Wayne Dempsey: I'm Wayne Dempsey. Albert Schepers is with me.

The Chair: On behalf of the committee, welcome. You have 30 minutes.

Mr Dempsey: Good afternoon. My name is Wayne Dempsey and I am proud to be the president of the Ontario Home Builders' Association. I've been a builder in beautiful Muskoka since 1975. I specialize in building homes and cottages for both permanent and seasonal residents and I take on a few small commercial projects from time to time.

Joining me is Albert Schepers. I am sure he's also proud to be the first vice-president of the Ontario Home Builders' Association. He is a structural and civil engineer and he has operated his Windsor company for the last 11 years.

We are both volunteers in the association, and in addition to our business and personal responsibilities, we are dedicated to serving our industry.

We appreciate the opportunity to speak with you, and I can assure you that it will be a brief report. You have copies of our full written submission, which you can peruse at your leisure.

I'd like to start by telling you a little bit about OHBA. The Ontario Homes Builders' Association is the voice of the residential construction industry in Ontario. As a volunteer organization, OHBA represents about 3,500 member companies, which are organized into 31 locals across our province. Our membership is made up of all disciplines involved in residential construction, including builders, land developers, renovators, trade contractors, manufacturers, suppliers, realtors, mortgage lenders, apartment owners and managers, housing consultants, economists, planners, architects, lawyers and of course engineers. Together we produce 80% of the province's new housing. The residential construction industry employs approximately 200,000 people and contributes over $20 billion to the province's economy every year.

Now Albert Schepers will bring you up to date about the current housing market and what we expect in the future. He will also discuss the impact the housing industry has on the economy of Ontario.

Mr Albert Schepers: As Wayne said, we will be brief. Before I leave this fair city, I have to pick up something for my wife. I was gently reminded that this is Valentine's Day, so I guess I'm stuck with that.

A healthy residential construction sector is not only indicative of a healthy economy in general, it is also a precursor to future growth. Economic expansion usually starts with an increase in housing starts as well as industrial and commercial development. This leads to new infrastructure projects along with institutional expansion, which provides the necessary foundation for the next generation of economic activity.

Last year, just over 186,000 jobs were created in Ontario, and many of these jobs were in residential construction. It's estimated that each housing start generates approximately 2.8 person-years of employment. Housing starts and renovation spending for the year 2000 were the highest in this past decade, allowing our industry to provide record levels of employment for Ontarians.

Last year our industry contributed over $20 billion to the Ontario economy. Construction activity also contributes significantly to government revenues. On average, each new house contributes $40,000 to $50,000 in taxes and fees collected at all three levels of government on the purchase price alone. Based on over 71,500 housing starts last year, that amounts to over $3 billion in tax revenue last year. Add to that tax revenues collected from renovation work and the ongoing tax revenue generated from housing, and it's clear that our industry is a major contributor to the health of Ontario's economy.

The year 2000 was another great year for our industry. Ontario's housing market was healthy and stable, showing a steady improvement. Starts last year were up by 6.4% over the year before. Stability in the housing sector should continue into the year 2001, bolstered by high consumer confidence, a healthy employment market and a solid GDP.

The major highlights of 2000 include:

Starts were up across the province, with some areas showing significant gains. Kitchener and Ottawa had over 24%, Oshawa had 17% and Toronto had a 12% increase in housing starts. However, there were communities that experienced decreases. These include Thunder Bay, Hamilton, St Catharines-Niagara, and Sudbury.

Multi-family construction was up by 9.4% in 2000 compared to the previous year and single detached starts increased by 4.2%. However, rental housing construction is still stagnant despite Ontario's robust economy.

You will find an economic forecast survey of our members, which was conducted in November 2000, included as appendix A in our submission. Nine out of 10 members surveyed expect sales to increase or remain the same in 2001 compared to the previous year.

This optimism is reflected in OHBA's forecast for 2001. We expect over 70,000 starts this year, which represents the sixth straight year of growth.

Renovation spending is continuing on an upward trend, with about $10.5 billion spent in this sector last year. We predict renovation spending will climb to more than $11.5 billion in 2001.

Ontario's economic performance has been impressive over the past year. Low mortgage rates and strong job creation fuelled consumer confidence and encouraged many new buyers into the housing market.

While generally optimistic, enthusiasm for the coming year is tempered with concerns over labour shortages and rising costs for materials and skilled labour. These increased costs, combined with increasing and new taxes, fees and charges, could hinder future growth.

More than 60% of our members cite increasing labour costs as an impediment to growth in 2001 and almost as many, 58.5%, were experiencing difficulties in finding skilled labour. The perception that increased building activity correlates to higher profit margins is inaccurate. Builders continue to operate under extremely tight margins; 44% of our members say this is the key concern for them in the coming year.

Builders and renovators are not in a position to absorb increases in materials, labour costs or government fees and taxes. The reality is that increased costs seriously hamper industry efforts to provide affordable housing for the Ontario consumer.

Wayne will now summarize some of the key factors affecting our industry and OHBA's recommendations. Thank you very much.

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Mr Dempsey: We'd like you to consider the following items.

Development charges and educational development charges imposed by municipalities across Ontario continue to concern builders. Not only do these charges contribute significantly to the cost of housing in the province, but there are serious concerns about municipalities not following the intent of the act, which is ultimately to reduce charges. As a result, development charges in Ontario have become some of the highest in Canada.

We recommend close government monitoring of development charges and educational development charges and intervention where necessary to ensure that the intent of the legislation-to reduce costs-is met. Excessive regulation and overtaxation on the homebuilding industry pushes the price of new homes higher and higher and consequently puts home ownership out of reach of many citizens. OHBA urges the government to introduce legislation that ensures fees are based on a reasonable direct cost-recovery basis and that such legislation allow for an appeal of municipal decisions about fees and levels of service.

We participated in the work of the business tax review panel appointed by the Ministry of Finance and we encourage a thorough review of the recommendations from that panel.

The difficulty in finding skilled labour to meet the needs of our industry is a serious and a complex problem. Tradespeople lost during the recession, combined with a record number of workers retiring, have exacerbated the situation. Informing and educating the public about the opportunities in our industry, as well as dispelling some of the negative stereotypes associated with skilled trades, is a major challenge for all of us. OHBA recommends the development of co-op programs at the high school and college levels that actually bring students on to the job site and provide them with hands-on experience in construction and safety practices. We also urge the government to increase school funding for shop facilities in order to run the programs productively. In addition, we encourage the government of Ontario to take an active role in urging young people to consider a career in skilled trades.

I don't need to tell you that rental housing is in short supply in a growing number of urban centres across the province. Nine regions have a vacancy rate of under 2%, and five cities, including Toronto, Barrie, Ottawa, Kitchener and Guelph, have vacancy rates under 1%. Despite Ontario's robust economy, the reality is that very little new rental housing is being built. The provincial government has undertaken a number of initiatives in the past to encourage the construction of rental accommodations, including most recently the PST grant program. We recommend the government renew the PST grant program and increase funding for this important initiative to support new affordable home construction. A review of the program criteria is also recommended so that the grants target the intended sector. In addition, OHBA urges the provincial government to review the recommendations from the housing supply working group and seek to eliminate any disincentives that currently discourage the private sector from building rental accommodation.

Many municipalities across Ontario have undergone or will undergo amalgamation. While 80% of OHBA members support the concept of amalgamating communities, they do have concerns about increased costs and delays that are being incurred by builders as these municipalities merge. Therefore, we urge the provincial government to expeditiously supply the necessary funding to newly amalgamated municipalities to ensure a quick, effective merger of building and planning departments, and to help them in rewriting zoning by-laws.

Once again, pressure from the underground economy continues to be a major problem for our industry, particularly in the renovation sector. In addition to unfair competition, governments lose out on billions of dollars in revenues. Health and safety standards of workers are unlikely to be met by underground contractors, and homeowners suffer with little or no recourse in the event of shoddy and unsafe workmanship. We recommend the government work together with us to seek out ways to encourage and entice consumers to use the skills and services of legitimate, honest renovators and contractors. We support the idea of a voluntary registration of renovators and site supervisors as opposed to the mandatory certification outlined in the recommendations of the building and regulatory reform advisory group.

Mr Chairman, let me conclude by noting that this government has cut taxes 99 times since being elected in 1995. Last year's budget announced a further 67 tax cuts over the next five years. At that time, your government made the land transfer tax rebate for first-time homebuyers of newly built homes permanent. Since this measure was first introduced in 1996, about $106 million in rebates were given out to over 78,000 Ontario families to assist them in the purchase of their first home. This in turn contributed to growth in the new housing market. We applaud the government on making the rebate program permanent and thereby helping to ensure housing remains affordable to first-time buyers. Let me also reiterate that OHBA and its members strongly support the fiscal policy of the provincial government and encourage you to continue in the direction of spending reductions and tax cuts.

Mr Chairman and members of the committee, thank you for your attention and interest. We look forward to hearing any comments or questions.

The Chair: And I thank you also on behalf of the committee. We have approximately three minutes per caucus.

Mr Christopherson: Thank you for your presentation. I think this is now at least the third time, perhaps the fourth, that the labour shortage has been mentioned. Specifically, you touched on it briefly here, but what role do you think the provincial government can play in meeting this? One of the answers is to bring skilled workers from other countries here, but at the end of the day we still have an awful lot of young people here in Ontario who are looking for careers, and taking up a trade is just as much a career as going to university and getting a degree. What sorts of real, concrete steps could the government take that would begin to entice people to get into an apprenticeship program and provide the skills that we need from among the existing labour force, the domestic labour force here in Ontario, as opposed to other answers?

Mr Dempsey: Let's face it: it's a selling job. The dot-com industry is a lot more sexy than the building construction industry. But even so, there are people who are not dot-commers, who are not computer geniuses, and they have as much right to have a very good job as the rest of them. We would like to see the colleges and universities showing building trades as an option. We feel at this point it's not being spelled out to some of the students when they come out of high school that there is another place to go other than to be a doctor, a lawyer or an engineer. We would like to see programs happen at the colleges side and to work with colleges and universities, but we also want to see it happen in the early part of secondary school. I think that's when you've got to change the attitude of some of the people in the schools to say, "Yes, it is a good job and you can make a good dollar there and it's a very honourable profession."

The Chair: We'll go to the government side.

Mr Garfield Dunlop (Simcoe North): Thank you for your presentation. I'd like to follow up a little bit on the skilled labour shortage as well. I'm from the riding just south of you, Wayne, in Simcoe North, and I've had a lot of concerns from local builders who are finding a severe shortage of people, particularly in their 20s, taking up apprenticeships. I've started meeting with these groups; we've been meeting at Georgian College. I've identified a couple of things that I hope I can pass on to you.

One is the fact that because of the apprenticeship schooling mostly being done in the GTA, it's difficult for people to go to trade schools. We could develop more trade schools at the local community colleges. In some cases in Toronto, for example, at George Brown, they have training on Fridays and Saturdays for 20 weeks instead of eight weeks.

The other thing that's been identified from my group, and it includes some people from Muskoka, is the fact that not a lot of people are actually willing to take on the apprentices. It may seem like there is a shortage, but if they're not being offered a chance-I'd like to know what your association is doing to promote the skilled trades actually taking on more apprentices.

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Mr Dempsey: It's always the problem that you have to get the experience, but how do you get the experience if you don't get the job? What we're suggesting is that some of the co-op programs may be a start, where we can give the kids a chance to at least get some experience and some safety training as well.

I think timing is really the secret. We're all so busy. We're building as many houses as we possibly can at this point, and we still can't keep up. You really don't want to let one of your employees off for three months to go and learn how to put in footings. You'd rather have him right there working, and that's really a problem.

We're looking at some Web-based training. If you have a rainy day-obviously in the construction industry weather is a problem-or it's too cold to work, maybe we can go on the Web and take some training and get some expertise that way. Certainly site supervision and a number of things could be in a Web-based training format.

The Chair: Mr Kwinter?

Mr Monte Kwinter (York Centre): Thanks for your presentation. I want to address the issue of the underground economy. Several years ago this committee actually had hearings on the underground economy, and it was really quite interesting. I can't remember if it was the Toronto Home Builders' Association or the Ontario Home Builders' Association-this fellow was in the renovation business and came to us and said, "It's really undermining our business. To give you an idea, I went to quote on a job to renovate a bathroom. It was $21,000, and someone else came who wasn't a legitimate contractor, he was underground economy, and said, `I'll do the job for $7,000.'" He said, "I was able to sell the job to this person." I said, "You're either the best salesman in the world or you've got the dumbest customer in the world."

The problem you have is that some of these people who are in the underground economy, are working during the day in the so-called legitimate economy. The big losers, of course, are taxpayers, because they are forgoing the taxes. The worker is getting his benefits on his day job and making money on his night job. How do you deal with that?

Mr Schepers: That's an ongoing problem. As we like to say in Windsor, where there is a slowdown in the economy during the summer when they have a shutdown of the plants, we've got another 1,700 renovators on the market. You're absolutely right.

One thing we have tried to do is put out pamphlets to educate the public, and legitimate renovators or builders will be using those to try to sell their product. In that sense, yes, they could be good salesmen because they can sell people on the merits of using legitimate contractors.

I don't know of any easy way of getting around it. It's probably going to be with us for a long time. Something we can do perhaps in the building end of it is implementing some of what BRRAG is suggesting-what came out of the committee-where there is some actual training for builders. I don't know how it works with renovators at this point, but with the builders there would be some mandatory training before you could hang up a shingle and call yourself a builder.

Mr Dempsey: One of the problems with putting recommendations on a renovator that he has to have a licence and has to have all these qualifications is that it really turns underground some who would normally be legitimate because they are at the point where they are really competing directly with those guys who are underground.

We're suggesting voluntary registration is probably better. Let the market look at it for at least a few years, give those legitimate operators an opportunity to pull themselves up and then it may go mandatory down the road.

Mr Phillips: The rental issue is, to me, a crisis-I represent an area in Toronto-and your figures suggest it's a growing crisis. The numbers I've seen say we should be seeing somewhere between 15,000 and 20,000 rental units built per year. As your figures suggest, it is maybe 1,000 to 2,000, so it's a huge problem. I think you also say in here that because of the threat of rent control, there are relatively few who want to built rental accommodation. I think we've heard that every single year.

We can tinker around with things at the edges, and you've suggested some things here, but is there any significant likelihood that the industry is going to get into building a significant number of rental units, or do we just have to say to ourselves that we have to somehow collectively find another solution?

Mr Dempsey: No. Just on some of the numbers there, I think about 2,000 rental units were built this year. We recognize it's a lot more than that, that there is quite a pent-up demand.

Basically, when we're sitting at 71,000 houses, which is the highest it's been in 10 years, we're tapped right out. We are working as hard as we can to cover the needs of the housing industry. If a developer has a choice of going with rental that may cost him more in taxes down the road or going with private housing, certainly he's going to go with private housing.

What we're saying is, a condominium on Jones Street pays property taxes at certain rate. The one next door to it pays double that.

Mr Schepers: As an apartment.

Mr Dempsey: Yes, as an apartment. When you go to apply for money-CMHC will guarantee funds-the premium on a very low risk project is about 2%; on rental it's 5%. That makes quite a difference.

What is happening is that probably about 40% of condominiums being built now are being rented. So the 2,000 rental units that were built this year is sort of a misleading number, because 45% of the condos being built are used for rental. The people in the traditional rental we now have move into a higher bracket and that frees up some of the lower-priced units.

The Chair: On behalf of the committee, I would like to thank you for your presentation this afternoon.

The committee will be adjourned until 2 o'clock.

The committee recessed from 1258 to 1400.

BANK OF NOVA SCOTIA

The Chair: Ladies and gentlemen, we'll bring the meeting back to order. It is slightly after 2 o'clock. Our first presenters this afternoon are representatives from the Bank of Nova Scotia. I see you're comfortably seated, so if you could please state your name for the record.

Mr Aron Gampel: Aron Gampel, vice-president and deputy chief economist, Scotiabank.

Ms Mary Webb: Mary Webb, senior economist, Scotiabank.

The Chair: On behalf of the committee, welcome. You have one hour for your presentation.

Mr Gampel: Thank you very much. Both myself and my colleague would like to read into the record a report that we have prepared for you on the Ontario outlook, and we also have, accompanying it for your perusal at a later date, a little bit more focused article on the auto industry and its impact on Ontario.

Let me begin by saying that we're always very happy to come to Queen's Park to give our views on the outlook, and this is a particularly apropos time, because we see things changing quite significantly in the local economy.

Provincial growth will decelerate sharply this year as the US economy hits the brakes. Scotia Economics expects provincial output to rise by only 2.3% in 2001, in line with the national average but less than half the annual increases that Ontario recorded over the past four years. This abrupt throttling back mirrors the big drop in American growth, from 4.5% annual gains since 1997 to less than 2% this year.

Much of the growth in 2001 on both sides of the border will be back-end loaded into the second half of the year, with momentum building into 2002. Even next year, growth will probably be less than 3.5% for both Canada and Ontario. The good news is that North America will likely return to a solid growth trajectory, underpinned by the productivity advances stemming from new technology, low inflation, low interest rates and pro-growth fiscal policies.

The sudden change in prospects reflects Ontario's heavy dependence on the US marketplace. Export volumes last year topped two thirds of provincial GDP, and more than 90% of external sales are destined south of the border. The US slowdown also will dampen overseas markets that are important to many provincial industries.

The US setback has been centred in the auto sector, which accounts for 45% of Ontario's exports. US motor vehicle sales have slumped in response to the declining confidence and spending power of American consumers. To reduce decade-high US inventories, Ontario production schedules for the first quarter of 2001 have been cut 18% from year-earlier levels, with negative fallout to industry suppliers along the production chain.

Despite the setback in external markets, provincial activity will be cushioned by continued strength in construction and locally focused service industries. The economic revival in Ontario and the rest of Canada lagged the US trend by a substantial margin in the early 1990s, creating a backlog of pent-up demand that continues to underpin sales and investment. Low interest rates, a very competitive exchange rate and fiscal stimulus at both the federal and provincial levels also will provide us with a performance edge during the difficult months ahead.

The Ontario economy retains considerable momentum at this time, adding 16,000 new jobs in January, roughly in line with the average gain over the past year. However, mounting layoff announcements point to lower employment in the coming months. Ontario's help wanted index, a leading indicator of provincial hiring trends, fell 1.5% in January. We expect provincial job growth in 2001 to be less than half of last year's 3.2% rise, pushing the jobless rate up over half a percentage point toward 6.5% by mid-year.

Consumer spending in Ontario has already begun to soften after an exceptional performance through much of last year. There was virtually no growth in retail sales between August and November after an annualized increase of close to 9% in the first seven months of 2000. The fall-off in spending mirrors an erosion in household confidence, with the conference board's index of consumer sentiment for the province down 7% from a year earlier in the final quarter of the year. The number of consumer bankruptcies filed in Ontario between January and November was 2.5% higher than the year-earlier period, following double-digit declines in both 1998 and 1999.

Housing starts reached 72,000 units last year, the strongest performance since 1989. While tight rental markets and low mortgage rates provide important support, softer economic conditions will make households more cautious about big-ticket spending. New home price increases have already begun to moderate, and the value of residential building permits was down 2.5% from the previous year in the fourth quarter. For 2001, we expect provincial housing starts to edge down slightly to about 70,000 units.

In contrast, non-residential construction should post further gains, driven by a legacy of project deferrals from the 1990s. Vacancy rates for office and industrial space remain very tight in many centres. Spending on infrastructure has also revived with the improvement in government finances.

Ontario's export-oriented manufacturing sector has already begun to feel the brunt of the US slowdown. Provincial manufacturing shipments were up just 4% in the 12 months to November, one third the pace recorded at the beginning of 2000. According to the latest national business conditions survey, 43% of manufacturers expect to cut production in the first quarter of 2001 and 19% expect to reduce their payrolls. An increasing number of firms, particularly those in the motor vehicle and steel industries, were concerned about softness in new orders and finished product inventories on hand.

By late spring, US motor vehicle sales are expected to tumble 18% below the record sales of 18.2 million units posted in the first quarter of 2000. This decline is only slightly less than the 21% decrease witnessed during the early 1990s recession. Even more worrisome is the slow revival in US vehicle sales expected for at least the next two years, given the low average age of the US vehicle stock and the extended life now expected of new vehicles. As a result, competition and pricing pressures will remain intense in the North American automotive market, forcing cost cutting and innovation.

In 2001, assemblies are forecast to be cut by 12% in the United States and 11% in Canada. For this nation, this is roughly double the cumulative decrease in 1990-91, reflecting its large and increasing share of North American automotive production. Since the late 1980s, Canadian assembly capacity has climbed by more than 40%, raising its share of the Canadian-US total from 15% to 19%. Canadian auto parts now average $1,900 per North American vehicle, double the level of a decade ago.

For Ontario, the motor vehicle industry remains a bellwether indicator, accounting for more than one fifth of the province's manufacturing output. The industry posted more than half of the province's hefty export gain during the past four years, beyond its 45% share of merchandise exports. We estimate that this year's downturn in the motor vehicle industry will shave approximately 0.7 of a percentage point from Ontario's real GDP growth, and the result could almost be double when all the indirect effects are factored in.

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The consolidation in the automotive industry will extend across southern Ontario because of its widespread network of manufacturing and service suppliers. The Big Three auto makers, having witnessed the steepest slide in sales, are expected to trim their production by 13% this year, while transplant assemblies will be down by only 1% to 2%. Beyond the historic concentrations of automotive activity in Toronto, Windsor and Oshawa, the share of automotive employment in the Kitchener-Waterloo area has climbed, while London is involved in heavy trucks and auto parts as well. Other centres, such as Hamilton, are the location for key suppliers, such as the steel industry, whose earnings are being further undermined by intense import competition.

On a brighter note, Ontario's auto industry should benefit from its relative competitiveness as North American production revives. Canadian assembly plants have higher productivity and lower unit costs than their US counterparts, even before the low value of the Canadian dollar is taken into account. Parts producers, after investing more than $10 billion over the past decade, are far better positioned than in the early 1990s. They have avoided the excessive debt leverage incurred by their larger American competitors, and a recent sample indicated that their gross profit margins were 30% higher.

In this downturn, several key industries and policy considerations should limit the correction for Ontario, making it far less severe than the 5% contraction in output incurred by the province during the recession at the beginning of the l990s. Looking further forward, Ontario's growth is expected to exceed the 1.9% average of 1992 and 1993, the initial years after the recession ended.

The automotive sector is only one of several Ontario industries to post stellar performances over the past four years. Other industries-electronic and telecommunications equipment, computer services, construction and tourism-should maintain positive, though slower, growth this year.

A low-valued Canadian dollar will continue to benefit many of Ontario's industries. Our dollar is expected to appreciate only modestly as international investors diversify away from the slowing US economy. However, it will still face significant headwinds and is unlikely to move sharply above 71 cents US over the next two years.

Many of the excesses that characterized the Ontario economy in the late 1980s are not apparent now. Commercial and industrial space, for example, has not been overbuilt, and vacancy rates at the end of 2000 were at, or approaching, record lows. Considerable infrastructure spending, after a major pause during the latter half of the l990s, is either underway or planned.

Both monetary and fiscal policy are in pro-growth mode. Canada's core inflation rate is forecast to remain well within its 1% to 3% target band, allowing monetary officials to pursue even lower interest rates during this period of slower economic activity. On the fiscal side, Ottawa and Queen's Park have accelerated personal and corporate tax reduction, and boosted spending. These stimulative policy settings should be positive for business investment and encourage consumer spending, given the considerable pent-up demand still existing among Ontario households.

I'm now going to just pass the baton over to my colleague, who will give the fiscal outlook.

Ms Webb: As North America's impressive expansion cools, it is increasingly important to keep Ontario's business environment competitive. The slower revenue growth we forecast for next year will force difficult trade-offs in key areas, such as infrastructure, social programs and taxation, that are so critical in attracting new investment. The province's greatest challenge may lie ahead in accomplishing further fiscal improvement in a slower growth environment.

Robust expansion over the past four years has generated 6% annual growth in Ontario's tax revenues, even while major personal income tax cuts were being implemented. Retail sales and corporate income tax receipts averaged annual gains of 8% and 10.6%, respectively. Each year, large interim increases over budget revenue estimates have allowed immediate allocations to urgent spending priorities and provided a margin for further tax cuts the following year. For fiscal 2001, the government now estimates that its revenues will be $2.2 billion higher than the original budget estimate. The risk is that next year's interim adjustments may be less encouraging.

Typically, Ontario's taxation revenues have exceeded expectations when growth is strong and fallen short of budget estimates during periods of retrenchment. With earnings being severely compressed in a growing number of sectors, softer government receipts, particularly corporate income taxes, will highlight the province's key structural weakness: a $114-billion debt that requires over $9 billion of debt service annually before other priorities can be addressed. Without the whopping annual revenue gains that we've experienced in recent years, this burden makes it hard for Ontario to keep pace with aggressive tax cuts in a couple of other provinces and in the United States.

In the last couple of years, Ontario has vied with Alberta in lowering taxes. Alberta, however, is comfortably covering its limited, and declining, interest charges with investment income. In contrast, Ontario must use 14.5 cents of every revenue dollar for debt charges.

We therefore encourage the province to fulfill, and better yet, exceed, its current commitment to repay at least $5 billion of debt from fiscal 2000 to fiscal 2004. The initial savings appear small, but by year five, cumulative debt retirement of $5 billion to $6 billion would slash the annual debt service by almost $300 million. Fortunately, the government also has substantial amounts of high-coupon debt maturing over the next few years. The total debt service saving from a combination of the committed debt retirement and advantageous refinancing should total about $1 billion in fiscal 2004 and each year thereafter.

Tax cuts for fiscal 2002 should be targeted to maximize their longer-term benefit. Options include accelerating the corporate tax cuts announced last spring. For 2001, the province may set made-for-Ontario personal tax brackets and rates, an important opportunity to modify the current structure to better suit Ontario's circumstances. Key to this redesign should be raising the threshold for the highest income tax bracket to reflect the growth in individuals' incomes and living expenses over the past decade.

In an environment of more moderate growth, Ontario's profit-insensitive taxes should be reassessed. In particular, corporate capital taxes fall most heavily on those firms enhancing their longer-term capital.

Sustaining the province's competitiveness also requires constant upgrading of its physical and education infrastructure. Close coordination with junior and senior levels of government and the private sector will be required to adequately stretch scarce tax dollars.

The province's substantial fiscal repair in recent years leaves Ontario much better positioned than it was in the early 1990s to withstand the soft North American markets anticipated. However, debt reduction will remain the key to sustaining the province's drive to be one of the most competitive tax jurisdictions in North America.

Mr Gampel: Let me conclude the formal part of our presentation by focusing on the risks to the outlook.

The economic risks are primarily on the downside in North America's current uncertain economic environment. The US slowdown could be both sharper and more protracted than forecast, resulting in greater dislocation for the Ontario economy. This development would seriously dampen the province's revenue growth and fiscal options.

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The massive US trade imbalances with virtually every nation leave Canada's key industrial sectors exposed during this downturn. While the Bush administration supports freer trade, particularly in the western hemisphere, potential trade sensitivities will still exist in the United States. Moreover, in the NAFTA bloc, Mexico could represent an increasing1y competitive challenge to Canada as its improving productivity builds upon its current low-wage advantage.

The final risk relates to Ontario's fiscal priorities. If the province delays substantively addressing its debt burden, it will become increasingly difficult for Ontario to match the initiatives anticipated in lower-debt jurisdictions, such as Alberta and a number of competitive US states. Even if Ontario comes through this correction largely unscathed, the province requires greater fiscal insurance to face future setbacks, as well as the longer-term demands of an aging baby boom generation. Thank you very much.

The Chair: We have approximately 10 minutes per caucus. I'll start with the government side.

Mr O'Toole: Thank you very much for a very academic and informative presentation. I look forward to reading the more detailed things on the vehicle side.

I'll just start with the impression I get-you know, you're one of the leading financial institutions. I noticed a language impression right off the bat of a heavy emphasis on the negative, although I heard a speech yesterday by the Bank of Canada-it was on the news of one of the networks last evening-and they were not as aggressive as you on the slowdown and impact and its forecasted turnaround. You're using "slowdown," "tumbling" and "declining," those kinds of words that perhaps are a self-fulfilling prophecy. You know what I mean? If you're saying it, and I'm the investor in your bank, I'm saying, "Gee, maybe I shouldn't." You know that argument I'm sure.

But in a specific sense, I would just like to comment on two parts in your presentation and Mary's which I found a bit of an anomaly. I'm not in a position to criticize you, but I am questioning you. On your second page, you spent some time talking about both the decline and the growth in the auto sector. Your chart on the bottom of page 2 probably tells the story better than the words. The decline you're referring to is more than offset by the relative growth in competitiveness in the North American economy. They're able to sustain the turnaround quicker. Maybe you could comment on that.

I think you dramatize that impact in the economy, and yet yesterday the minister was very clear when he talked more positively about the accelerated growth in the expansion in the high-tech sector. He didn't spend as much time on our traditional dependence on the auto sector, not that he ignored it, but certainly you've spent a fair amount of time on the auto sector decline here having the longer-term effect on the supply side.

Mary, on your side, I had another thing too. On one of the last pages that you were talking about-and I'm going to ask you a question-you started off by saying, "Without a whopping annual revenue gain, this burden makes it hard for Ontario to keep pace with aggressive tax cuts in a couple of other provinces and in the United States." I'm wondering, should we remain competitive? That's what they're all saying, that we have to keep competitive with our trading partners and certainly the ones in closest proximity. Should we do it? In a tax policy area, should we continue with the corporate tax cuts and the other tax cuts that encourage investment, encourage us to be competitive for investment, attracting investment, which would be the turnaround? The recovery, if you will, will be the continued investment climate.

Then at the very end of that, you say, "However, debt reduction will remain the key to sustaining the province's drive to be one of the most competitive tax jurisdictions in North America." You sort of answer the question, and the question is: should we not continue with tax cuts, both corporate and personal, to remain competitive based on the paper you've presented here? You've presented both sides of it. Are you saying we should continue tax cuts, both corporate and otherwise, or not and be competitive with our partners? That's the question.

Mr Gampel: Lots of questions there to answer.

Mr O'Toole: You presented lots of them.

Mr Gampel: It's OK. Let me try to address some of them first and then I'll pass the baton again to Mary.

What we reported to you is largely what has already happened in the North American marketplace. The difference in this cycle compared to if we go back just a few years ago to the Mexican peso crisis in the mid-1990s or the Asian flu epidemic that swept over our shores in 1998, this time around the difference is that the slowdown-and you have to use the term "slowdown"-that is emanating out of the United States is internally generated. Therefore there is, in our opinion, more risk to Ontario and Canada as a whole because our major trading partner that we have become increasingly integrated with is undergoing a very sharp slowdown.

The markets have already reacted. Interest rates have come down dramatically. Central bankers have begun cutting rates a little bit more obviously dramatically in the United States than in Canada. The stock markets have reacted as well to the severe profit compression that's already underway. Markets have already reacted, and businesses are now adjusting to the slower sales environment that has largely taken place.

We are at a loss of course early in this new year because we don't have a lot of data. We do know, for example, that the national employment situation has slowed down, although in Ontario it did not in the latest month, but the trends would suggest that the slowdown in sales and in production to redress the inventory is underway. As we get our numbers, and they are lagged in this country, in this province, we will find this slowdown is intensifying.

I don't think we're promoting any unnecessary concerns beyond those which have already been in the marketplace. Anyone who has looked at their portfolio balances and their monthly statements has known for quite a few months now that things haven't been all that good, because the earnings weakness has been reflected in declining stock market valuation. I think what we're trying to present is a picture of conditions which have slowed, but are not into the negative growth territory. We did not use words which I think would be inflammatory. One starts with the letter "r," and we purposely have avoided that because it's not our forecast. We think we are cushioned and that for this year we will probably outperform the United States, which I think in this type of environment is exceptionally good.

Again, you had mentioned as part of your question the competitiveness of many of our industries. There's no question we have become a much more regionally balanced and diversified economy, and the high-tech sector is certainly one that we can point to as being a large contributor. In fact, on a national basis-and of course Ontario bulks so large that the statistics are going to be largely Ontario-dominated-that sector of the economy that really is only in the range around 7% of our GDP has accounted for around 20% of our growth over the last three years.

The high-tech sector remains very fundamentally an important part of our long-run growth prospects, but the interesting thing is that even the high-tech sector is not invulnerable. What we've seen is quite a significant retrenchment in new orders. A large part of that is emanating out of the United States, but it's also backfilling into Canada as well. You have to remember that the economy is so integrated that if the auto cycle slows down-the automakers are one of the key industries that buy a lot of this technology, and with the problems that have developed in certain areas of the technology market, they were big buyers of technological-related equipment and services. What we're seeing is that two of the high-growth areas of not only the Ontario economy, the Canadian economy and the US economy, but really the global economy, have lost momentum. These areas are growing. They're just not growing as fast. Of course the cutbacks on the auto side are dramatic, but they reflect the fact that the automakers are not expecting the sales performance to match the stratospheric levels that they have reached. We just came off of a decade of record-setting growth in the United States. It's hard-pressed to ensure that Americans are going to continue buying at the same pace that they have in the past, and most of our production is geared toward that US market.

I think I have tried to answer some of the question. I'll pass it to Mary as to the fiscal question you asked.

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Ms Webb: I have just one further comment to add. We look for profits in Ontario to fall by at least 3% on average this year, and we would definitely look for earnings declines in the first half of the year. If we're right, and given all the announcements we're getting from a number of Ontario's key industries, it's hard to envision that these businesses will not respond with cost-cutting and rationalization, just because of the realities of the marketplace.

On the fiscal side, I'd emphasize that we don't consider debt reduction and tax cuts as mutually exclusive. In fact, we think they're complementary and that they can and should be accomplished simultaneously. Ontario's fiscal record in the past few years has shown that to be true. I'm concerned that it has been relatively easy in the past couple of years because revenue growth has been sufficiently high that a whole bunch of priorities could be addressed. We could start corporate tax reduction; we could replenish some capital spending for universities. We had enough money to cover a lot of bases. Our forecast shows that for fiscal 2001-02, that's not going to be the case. Revenue growth will be more moderate, and so it becomes a careful balancing act. That's why we were emphasizing that tax cuts need to be targeted to those that will provide the best longer-term structure that will optimize the results.

Having said that, I think Ontario's industrial structure and the growing importance of high tech in the province only underlines the really critical need for us to stay tax-competitive. We have the States moving ahead on tax cuts both in Washington and with so many of the states already having five to seven years of tax cuts under their belt, and there's no denying that Alberta will be moving and I think you'll see other provinces moving as well.

Mr Phillips: I'll start. Thank you very much. Just from our side, we like economists to come in and tell us not what we want to hear but what is your best estimate of what's going to happen. I think Scotiabank, if you go back over the last 10 years, has probably been the most accurate economic forecaster. I think you would find that. So I welcome your coming in and giving us your best advice, and I think your bank customers do too. They want to know what's going to happen. As I say, if you tracked the last 10 years, I think Scotia's been the most accurate of any of the forecasters.

Having said all of that, just your advice on a few things. One is on job growth. I look over the history of job growth, and I've never seen job growth exceed real GDP growth in percentage terms. It looks like job growth's been at the rate of maybe 60% of real GDP growth. I see in here you're predicting GDP growth of 2.2% and job growth of 1.4%, and then 3.1% and 1.7% next year. What advice do you have for us as to what we should be looking at in terms of job growth in the economy, what kind of a factor of GDP, or do you use another factor for estimating how many incremental jobs the economy's going to generate?

Mr Gampel: I don't know, Mr Phillips, if we look at it in those terms. I think how we tend to do our forecast is to look at the sectors specific in that regard and try to build up. There's no grand model here that spells out something, that there's a direct relationship between GDP and employment. I think what we're seeing is an attitude on the part of business right now to become a bit more cautious because of the speed of adjustment.

I must tell you in all honesty that in talking to customers and prospective customers in recent months, things were going exceptionally well for many of Ontario's and Canada's businesses up to some time in, I would say, maybe early fall. All of a sudden things just fell very, very quickly, and a large part of it was not domestically; it was coming out of the United States. Of course, with the increasing export focus of our businesses, they were feeling it, and we were getting that sort of feedback from our customers, yet it wasn't really showing up in the numbers until later on.

But what has happened is that across a broad swath of industries we're seeing, obviously-at least the feedback I'm getting is that the softening was so dramatic that businesses are in the process now of adjusting their growth in terms of adding. Outside of certain industries which have already indicated they are cutting employment, we haven't seen a lot of firms yet in this country or in this province letting workers off. What we're seeing of course is a change in sentiment, that they're just not hiring as much as they have been in the past. So a lot of it is a function of the changing attitudes and a much more pragmatic approach to the outlook that is rapidly developing.

I think that as policy-makers here, whether it's David Dodge or his predecessor, Mr Thiessen, or even Mr Martin-of course Mr Greenspan has been increasingly vocal in the United States-it's been the speed of the downturn, not the fact that there was a slowdown coming. It was the speed of the downturn in the United States that has caught everyone off guard. So what we're trying to reflect here-and a large part of this is subjective. Although Mary spends a lot of time and a lot of the bank's money on the computer, there's clearly an amount of subjectivity here in how we are looking at the employment conditions. Based on what we've seen in prior cycles, we think this is probably a very moderate response. But anecdotally there have been a lot of indications that businesses have become extremely cautious now and have tempered their hiring plans.

You see it, for example, in the high-tech sector, where there has been quite a major shift, where the demands were so strong that you couldn't fill positions. Certainly in our organization, which is a major purchaser of IT types of goods and services, the demands were so high, and of course there is tapering off. There is tapering off across a broad array of sectors. I think this is what we're trying to portray here, that the demand has softened.

Mr Phillips: There's a debate on how important exports are to Ontario's economy, particularly international exports and particularly exports to the US. You seem to place a higher emphasis on the importance of exports to the Ontario economy than others do, including, I might say, the finance minister. Why would there be kind of a difference of opinion on the impact of exports among those who look at the market? As I say, what I take from your presentation is that it's going to have a much more immediate impact on Ontario's economy than others would think, including the finance minister.

Mr Gampel: To be honest with you, I think we may choose to emphasize it more because of the increasing focus that Canadian and Ontario businesses have been putting on, obviously, expanding their reach. So in this new age of globalization and rapid communications there is a much more highly evolving focus on conditions in our major trading partners and other trade linkages. So personally I would weight that.

Upon saying that, our forecast has growth slowing to a rate of growth that a few years ago we would have thought was pretty good, somewhere around 2.5%, after this superheated growth that we came to like and hope would stay with us for a long time.

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So we're still saying there is enough resiliency in the economy and enough areas of strength that will keep us going. There are enough infrastructure projects in this province and across the country to keep us going for quite a while on the construction activity side. So I think there are a lot of domestic-related strengths.

However, I think it's clear from our standpoint that this is a much more globalized environment, and therefore the linkages-the auto sector is a clear example of where we are outsized producers relative to the domestic market. Therefore it's not surprising that we would feel that if the US shudders, we're going to feel it a little as well.

Mr Phillips: The government no longer gives us any kind of revenue forecast, which I find disappointing. We kind of have a $60-billion business and we can't get a forecast of revenue over the next 12 months. It is done; they just won't give it to us.

I'm wondering what advice you have for us in terms of what factors you use to project revenue increases-I think you hint that it's above nominal GDP in some areas-so this committee, on the back of an envelope almost, might be able to put together some numbers of what we're looking at for the next year.

Ms Webb: We forecast your three major sources of taxation revenue: personal income tax, retail sales tax and corporate income tax. They run off an adjusted personal income number, the corporate profits we're looking at-I was indicating to you that we expect them to climb this year-and retail sales growth. From that we subtract the known budget impact, or what we've assumed going forward, of any further tax cuts. In the particular scenario we've mapped out for the province, we've assumed that tax cuts are at least a billion dollars each year.

On the other revenue side, to be honest, we work in whatever special factors there are and simply look at the time series and what seems reasonable. Right now in Ontario's books, of course, there's quite a bit of complication because of the whole electricity sector, and that is definitely making it tough to come to a final number. But it certainly shows you the underlying trend.

On the spending side, we've assumed it stays relatively constant at about 12% of GDP. That is slightly more, in terms of growth, than population and inflation. We felt that was necessary, given that capital spending had fallen quite a bit in the latter half of the 1990s, that the government has stated its commitment to replenish that capital spending and that we will probably see spending growth in the order of 4.5% at a minimum over the next few years.

Mr Phillips: Are those calculations available to the committee?

Mr Gampel: I don't see why not. A lot of them are back-of-the-envelope.

Mr Phillips: It's more than we've got from the government.

The Chair: With that, Mr Phillips, your time is expired. Mr Kormos?

Mr Peter Kormos (Niagara Centre): You talked about superheated growth. Are you talking about the superheated growth of the Ontario/Canadian economy or the American economy?

Mr Gampel: I was referring to basically Ontario and Canada. Both growth rates were very high. Of course that basically piggybacked on what was happening south of the border as well.

Mr Kormos: So the growth was in the United States?

Mr Gampel: It's a combination.

Mr Kormos: I read your material and listened to your comments about the auto sector being presumably predominant in the American economy and one in seven jobs in Ontario being related to the auto sector, but it's the support of the Ontario auto sector for the US auto sector that drives the Ontario auto sector. Is that right? Have I misread that?

Mr Gampel: I think that-

Interjection.

Mr Kormos: Listen, Mrs Molinari, to the man answering.

Mr Gampel: I would classify it that obviously there are certain sectors in this economy which rely on strong growth in other countries. In this case, our auto production and parts sectors are obviously closely tied to developments in the United States, as well as to Canada. Other industries are much more domestically orientated-construction-related activity.

In this case, what we are showing in our forecast right now is that obviously we are succumbing to some of the pressures of a slow international growth environment led by the US. It's an industry which is supportive of Ontario and Canada, as well as relying on the strength of the United States.

Mr Kormos: You mentioned three factors-the low interest rates, the very competitive exchange rate, and then fiscal stimuli at both the federal and provincial levels, and you put them in that order-as being the things that will protect us from an even lower downturn than what we would experience. Right? Were these factors as well in terms of the growth of the Ontario economy-the low interest rates, the very competitive exchange rate?

Mr Gampel: I think they were factors in helping Ontario and Canada to exceed the very sluggish rates of growth that we recorded in the early 1990s. I think they were factors that contributed. I think it's a compilation of factors, a compounding effect.

Mr Kormos: Earlier today I understand that Mr Stanford suggested to the committee that the tax cuts didn't cause the recent growth. Would you disagree with that? I wasn't here when Mr Stanford was here. I know him, though, and I find him a pretty intelligent and well-researched guy.

Mr Gampel: I'm sure that every economist you ask will come up with a slightly different answer. So I don't know if I'm going to be able to help you in analyzing this. Again, I think it's extremely hard to try to isolate one particular factor or just a couple of factors that are contributing to or have contributed to Ontario's very strong economic performance. I think a lot of it is domestically generated within the province in terms of the tax measures. A lot of it has to do with other factors within the province in terms of worker and productivity gains, education, a variety of other factors. A lot depends upon national changes-the interest rate environment, which is a function of national as well as provincial trends-as well as what's happening internationally. So I don't know. Personally, in all the years I've been forecasting, I've always found it difficult to say, and not just because I'm testifying before you today, that there is one answer or one reason why a region excels at any particular time. I think it's a combination of factors that contributed to it.

Mr Kormos: There's another reference in your submission that talks about the role of Mexico and NAFTA and the risk that that poses: "Moreover, in the NAFTA bloc, Mexico could represent an increasingly competitive challenge to Canada."

I come from down in Niagara region. We've got the GM plant down there and not a whole lot of stability in the employment there. Are you talking about the auto assembly industry?

Mr Gampel: I think it can be a variety of industries. I also come from the Niagara region.

Mr Kormos: We're both fortunate.

Mr Gampel: That's right. I can remember a lot of industries which are no longer there. But I think the key here is that even in very productive sectors of our economy now the competitive pressures coming from all over are immense. We live in this globalized world where we want to trade, we want to grow, we want to improve our standard of living. It's a dynamic setting where the competitive challenges change basically on a daily basis. What I'm saying is that it doesn't have to be old industries that are affected by the competitive challenge; it can be new industries as well. That's why we indicated that during this period of profit compression the challenge, of course, is going to be for businesses to again focus on the bottom line and productivity enhancements, because that's what will keep us in business. There are always going to be competitive challenges from countries and jurisdictions around the world.

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Mr Kormos: You also speak and write about the prospect of the Big Three American automakers losing even more of their market share, and that's not something that you can write into the variables as a scientist, is it?

Mr Gampel: No, it isn't.

Mr Kormos: Last week, I read in the newspaper how the new Minister of Finance, presumably after talking to the province's experts, had talked about growth of-what?-3.1%. It beats 2.8%. I don't know a whole lot about these things, so I rely upon what I read. Then I read this week the Minister of Finance has changed his mind and said it's 2.8%. He said one of the banks suggested this. How is a Minister of Finance influenced so much by what a bank says when the Ministry of Finance has the expertise over here across the road crunching these numbers? Is that what you people call it?

Mr Gampel: I can talk just from our own experience. We appreciate the comments that Mr Phillips made about our forecasting record. The key here is that everyone was caught with their pants down this time around. The speed of the adjustment has taken everyone by surprise. This is a very humbling type of job. Throwing darts at the dartboard isn't that easy. We don't spend time checking up on our competitors, what they're doing with their forecasts; we have a hard enough time trying to come up with the answers. But I'll tell you that around the world there has been an almost instantaneous downgrading of forecasts. So it does not surprise me. Some have occurred faster, some have occurred at a slower pace, but universally most forecasters have been downgrading their forecasts.

To be honest with you, I know it makes a huge difference in provincial revenues and the outlook when you're talking a difference between 2.5% and 3%. Remember, we were just coming off growth rates of around 5% to 6%. There has been a significant downgrading of forecasts by everyone, and that just reflects the reality of the changing sentiment that's out there.

Mr Kormos: I suppose what causes concern is those variables you talk about that can't be arithmetically measured, like for instance a greater loss of market share by the North American Big Three; for instance by the increasing competitiveness of Mexico.

Mr Kwinter and Mr Phillips have been here twice as along as I have, but the three of us were here in 1989 and 1990, when I listened-I was much younger then-to the experts from the Ministry of Finance. We enjoyed huge revenues. We had a balanced budget. I remember the newly elected government being in crisis because they were called together and they were told, "Oh, my goodness, there's going to be a $2-million deficit," and then it was $3 million. But of course it soon erupted into billions.

I'm wondering, what kind of margin of error is there? I agree with what Mr Phillips says about you. I don't dispute that he says you've had the most bang on, accurate predictions. But what's the margin of error? People were saying all sorts of things about the recession of the early 1990s, too, about the depth of it and the length of it, weren't they? They were all over the place.

Mr Gampel: Let me just go back to what I said before. What we're dealing with here is a dynamic sort of shift. We've come off this superheated growth, this productivity-driven growth. Economies had seemingly moved to a new and higher plateau and all of a sudden we've had this downshifting. Some are at lower growth rates, some are at higher growth rates. For your own purposes, you might want to look at consensus forecasts that are produced internationally, which look at what is happening and essentially average out what a lot of economists are saying. I think it's always hazardous to hang your hat on one particular forecast.

But again, I think the reality here is that our biggest trading partner-and I just go back to it again-has lost considerable momentum. With the expanded trade linkages that this country now has with that market, it's inevitable that we will have some slowing in our economy, in the provincial economy. What level? Again, this is our view. There are other forecasters out there. I think you throw out the highs, you throw out the lows, and you come up with an average that you're looking at for your own purposes. However, what we're trying to do is present the risk, that there is some downside risk here and that this should be taken seriously.

Mr Kormos: Is it also the case that you could come back in let's say three weeks and have a totally different set of predictions? One of the things I learned in the early 1990s as well is that over relatively short periods of time, all of a sudden the so-called fast and firm predictions were being changed every week. When you talk about the variables that can't be arithmetically measured, could you be here in a month's time with a dramatically different prediction than what you have today?

Mr Gampel: I think you could. There's always that chance, but I would say it's very low. For example, every day you pick up a news report of major layoffs that are occurring in the United States. Once you look at what the companies' names are, there is always a link into Canada or some other supplier that we are dealing with. I would say we can always change our numbers in microscopic amounts, but I don't think we're going to change for the next little while our feeling. I think we're pretty much happy with this type of forecast, this particular view, at this time.

Can our economists be wrong? Of course they can be wrong. However, one thing you have to take into account-of course, we focused a lot of our comments today on one particular industry. You have to remember that the temporary layoffs in the auto industry have already occurred or they are occurring as we are speaking. The permanent layoffs don't take effect until the second and third quarter. So there is a delayed impact of this. We're just at the initial stages of this. So I would be happy with where our forecast is right now.

Mr Kormos: I hope so. Like you, I come from Niagara. We've seen plants like Union Carbide, and Gallaher Thorold Paper, one of the two mills in Thorold, disappear. We've seen major downsizing at the GM plant there. Atlas Specialty Steels-and again, you talk about the auto industry and how it relies less and less, if at all, on stainless steel-significantly reduced their workforce.

Have you been there recently? The new jobs down there are the ones in Niagara Falls in the hospitality industry, which are seasonal and low-income jobs. I just met with a couple of hundred Gallaher workers, mill workers all their lives, who are going to go through a job training program and they're going to be told to become a part of the IT economy. These are mill workers. You know thes guys: big, beefy fingers on them. These are big, tough guys who have worked in the mill all their lives, and they're going to start keyboarding at the age of 60? It's tough for those guys and their families.

The Chair: With that, we've run out of time. On behalf of the committee, thank you very much for your presentation this afternoon.

TORONTO-CENTRAL ONTARIO BUILDING AND CONSTRUCTION TRADES COUNCIL

The Chair: Our next group this afternoon is the representatives from the Ontario Building and Construction Trades Council. Could you please come forward and state your name for the record. On behalf of the committee, I would like to welcome you. You have 30 minutes for your presentation this afternoon.

Mr John Cartwright: My name is John Cartwright. I'm the business manager of the Toronto-Central Ontario Building and Construction Trades Council. With me is Dan McBride, who is the recording secretary of the council and a representative of the plumbers and pipefitters union in Toronto.

We appear in front of you today to talk about an issue that is politics, but it's politics expressed in dollars. That is the issue of the importance of strong cities in this province over the next decade and the fundamental crisis that's occurring as a result of downloading of costs and a basically unfair division of responsibilities between Queen's Park and the cities across this province, but particularly within the greater Toronto area and the core of the GTA, which is Toronto.

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It's ironic that even as we move into the overwhelming majority of Canadians and Ontarians living in cities, cities are still creatures of the province that can have their governance changed at whim, have their funding changed at whim, and not have a role that is constitutionally laid out. That's not up to this committee to change. But from our point of view, we represent people who build the cities. We represent 45,000 skilled men and women who are in the construction trades across the greater Toronto area and who have built everything that you see, from the subdivision housing up to the Air Canada Centre or the Sheppard subway line and in between-the factories, the hospitals, the schools.

We want to ensure that what we build is going to have some permanence. We want to be able to hold our heads up and say that Toronto is a city that is going to be and remain, as Fortune Magazine said some years ago, the best place in the world in which to live, work and do business, and, we would like to add, raise a family. In my own role on the city of Toronto's Olympic bid committee, 2008, I want to be able to hold my head up and say, when the IOC people come here on March 7 to 10, that they will be looking at a city which has a strong future in front of it, and when they vote on July 13, that we'll be well positioned to say we'll win that bid and carry out the Olympics properly.

But we've got a crisis at this point in time in downloading. I understand that when the original Who Does What exercise was taking place, there were two elements that were being talked about. One is that at the end of the day the responsibilities divided between municipalities and the province should be revenue-neutral. The second is that it should give clear areas of responsibility between the two levels of government. I think in both those cases we've seen that there has been a total failure.

I'm not here to throw stones, although I'm sure I can feel strongly about a variety of issues. I'm here to actually talk about what I think is a fundamental error in judgment that's been made and to request that that be critically examined to see how we can do things better for the future to ensure the strength of our cities. The strength of our cities is not just about megaprojects and glittering towers that our people get excited about building. It's not just going to be about fixing up the waterfront and the commitments of both the provincial and federal governments to contribute to that, along with the city putting in land. It's about what happens on a day-to-day basis to the men and women who live in the city, to their children as they go to school, as they look at day care, as they try to ensure they get adequate health care. We are in a situation now where the downloading in a whole series of areas and the cutbacks are starting to impact on that.

The biggest example, I'm sure, is the fight that's going on publicly or has been going on between the mayor of Toronto and various cabinet ministers and backbenchers from the government on who is responsible for what and whose fault it is. I don't think I want to get into that, certainly not that tone, but in our submission, if you look at the areas of responsibility in the city of Toronto-and I'm using the city of Toronto mostly at this time to talk about something which is part and parcel of the GTA, especially for Mr O'Toole's benefit-the things that the city has to provide from its very limited and fixed revenue stream are unbelievable: police, fire, ambulance, transit, roads and highways, sewer and water, social assistance, public housing, recreation, parks, sports, swimming pools, child care, libraries, homes for the aged, garbage collection and disposal, and so on. To have to provide that on the basis of property taxes, along with some mixed contribution from the province which always has strings attached and is always limited, is just unbelievable as we are moving into the 21st century.

What we're calling for here is not to say that somebody is wrong in one place or somebody is wrong in the other place, but it's to say that we need to fundamentally have a new deal in how the province relates to the large urban spaces throughout Ontario, particularly the city of Toronto. That new deal is not just about municipal financing; it's also about school and education financing.

The funding model that has been imposed on the school boards, particularly in the city of Toronto but also other boards that have older cities and older schools, is unworkable. The concept of the square footage basis per pupil doesn't work in old schools. You have in the Toronto Star today a major article on overcrowding in portables in the Flemington Park area. Portables aren't covered by the funding mechanism.

When you've got a population like the city of Toronto, where we are proud to boast we have people from 169 different countries who speak 100 languages, the result of that kind of diversity, which is our strength economically and socially, is that it has huge impacts and burdens on the education system. So the city of Toronto's education systems must have a responsible and rational funding basis for them to carry on what they have to do.

It's not just about new Canadians coming here that we have to deal with those various social services. There's also the fact that if you're living in northern or eastern Ontario or Atlantic Canada and things aren't going well for you and work has slowed down, Toronto is an economic magnet. We, throughout the GTA, attract a whole host of people who are moving here from other provinces, and not every one of them finds success. When they don't find success, they end up being part of the cost of social service burdens that, again, must be borne based largely on the property taxes that are raised.

The figures the city of Toronto has recently released show that of every dollar raised from Torontonians in the form of taxes-income taxes, fuel taxes and other taxes-a nickel, in fact less than a nickel, derives to the city of Toronto through property tax, through its own sources. All those other services we talked about before have to come out of that nickel, which is absolutely crazy. Obviously, that does not account for the education tax coming back, in the footage, but it's not much more than that nickel.

So you've got a fundamental problem of an area that everybody talks about as the economic engine, the economic centre of this country, with a totally inadequate funding base to be able to deal with the issues that are its mandate and responsibility. Add to that the housing crisis, which in this province affects Toronto, with a vacancy rate far less than 1%, much harder than any other city. Rents are rising as tenants are being evicted, and thanks to the Landlord and Tenant Act or the Tenant Protection Act-whatever it's called-units are delisted and rents have risen over 4% just in the last year. Thousands of people are facing eviction every month, as it becomes more and more in the economic interests of landlords to ensure eviction so they can free up those apartments and raise the rents.

Affordability of housing has gone down the toilet, essentially. There are all kinds of high-rise condos being built. If you drive around here, there are lots of cranes. We're really happy for the cranes, very happy for those cranes. They keep the people we represent busy and give the next generation we're trying to train as apprentices a job opportunity. But the fact is that if all we are building is luxury condos and huge, sprawling single-family homes in the suburbs, we are not dealing with the issue of affordability of housing.

One of the elements we think the government of Ontario has to do is come back into the housing area in a very real way. You have to come back and start funding the creation of affordable rental housing. You have to come back and get over the distrust and dislike by this government of co-operative and non-profit housing. The studies all said the costs were the fault of the developers who jacked up prices on the land, not the cost of construction of that stuff and not particularly the cost of subsidies. But the reality is that we've now been waiting for six years for private sector developers to start building rental housing, and they're not going to do it because they can't do it at something that's affordable on the basis of 30% of family income going to rent.

We're saying it's an absolute responsibility of this government to get back into the affordable housing field. We've said the same thing, by the way, to the federal government. We are also going to talk a little about transit in a minute, and the message on that is the same to the feds and the province. In our opinion, the downloading of social housing, the downloading of Ontario housing on municipalities, is fundamentally flawed even though it comes with a chunk of money, because once again you're back to a base of property taxes to pay for thousands and thousands of what were formerly Ontario housing units, and the ongoing cost of those things is going to escalate and put on more and more pressure.

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I'm going to move on to transit. In the decade between 1987 and 1995, we spent a lot of time talking to anybody who would listen about the absolute need to develop rapid transit in Toronto and in the greater Toronto area, and the requirement for seamless transportation through there in order to deal with what would become transportation gridlock and trucking gridlock as the GTA expanded. For a period of time, what was called RTEP, the rapid transit expansion program, was on the books with four lines. In 1994 that was cut down to two lines, and in 1995 that was cut down to one line, the Sheppard line going from Yonge Street over to Don Mills. The government of the day, in dialogue with Metro and the about-to-be mayor, Mel Lastman, agreed to continue funding the Sheppard line, as they had committed to.

But the reality is that the Toronto Transit Commission is going broke. You can't have a major subway system being paid for from the fare box at the level of 81%. It's a recipe for disaster. There is no other transit system in North America that does not get funding for operating capital from senior levels of government. We had the TTC as the premier transit system across this continent and being given award after award until the time it lost its funding source from the province. Essentially, it's like a stranded entity at this point in time.

We're saying, as part of the 10 points we want to talk to this committee about, that the province has to return to a funding formula of 75% for capital costs and that we want you to support the operational costs of public transit at a level of 30%. That's not just for the TTC; it's for all public transit systems throughout the province.

As a society, we're supposed to understand that we've got to deal with environmental issues and transit issues in a much more progressive and forward-thinking way than we have in the past. There are lots of folks who want to build more and more highways, but the reality is that if you want to deal with environmental issues and the Kyoto commitments of this country, we have to move more people on to public transit. The province of Ontario can't close its eyes and pretend it doesn't have to be part of the solution.

We've got 10 points, starting on page 2. Maybe I'll take you through them now. The first one is the funding formula for capital costs and operation.

The second is the social housing monies. The federal government gave the province a pot of change when it downloaded responsibility, and the province hasn't quite found a way to pass all that change on to the various municipalities. We think that should happen.

Housing: we think the province should enter funding arrangements with non-profits and co-operatives to provide 5,000 new affordable rental units every year.

There needs to be a more rational funding model for public and separate boards of education that reflects the real need of providing full educational opportunities for all children in Ontario. There has been a lot of talk in the last couple of years about early childhood education; Dr Fraser Mustard was the hero of the year just before the last provincial election. That needs to be followed up with funding to make those things happen, along with a respectful approach to the boards of education rather than an approach which denigrates the role of the boards of education and their elected trustees.

Point number five is around the environment. It's interesting-and you'll forgive me for coming back to the Olympics-but I think people in this House sometimes view comments from the trade union movement as something that can be easily ignored. The reality is that one of the three pillars of the Olympic bid is the environment. It's required by the IOC. We have had a continual crisis around the environment in this province since the massive cuts to staffing and funding of the ministry and the ability to prosecute. The figure that came over a couple of years ago of 1,000 violations where only two were prosecuted is intolerable in the year 2001.

We understand we have a responsibility to fully protect the water, air, soil and public health of the people of Ontario and that the provincial government has to play a lead role in that. So we're calling on a return to the full staffing and funding for the Ministry of the Environment-also the Ministry of Natural Resources, I suppose, but that's not as much in the GTA issues-and to move forward on ensuring that energy saving and pollution control measures are in place to meet our share of Canada's Kyoto commitments.

The sixth point relates to the specific element of the commercial tax level in the city of Toronto. That's been an item for years and years. That's been our problem, the unequal level of taxation on commercial properties in Toronto. It is being evened out, but at this point today the province of Ontario levies a far higher amount of tax on commercial properties in Toronto than on any other city in this province in order to fund education.

Am I getting in people's way here; I'm not sure.

The Chair: I'll manage the meeting sir, I think, if you keep continuing your presentation. I don't need any help this afternoon.

Mr Cartwright: Thank you, Mr Chair. That's very kind of you.

The commercial tax should be immediately dropped to the provincial average and allow the city of Toronto to spread its property tax rates over from just a single-family home over to commercial to balance that off so that the family homeowner is not faced with the highest tax levels.

We want to see provision of funding for recycling and composting by municipalities to achieve a 65% solid waste diversion by the year 2008. Nova Scotia is the first province in this country to reach a waste diversion target of 50%. It did that in only four years. Once it put its mind to it and applied some political will to doing that, that was in place. The province needs to actually move behind those kinds of initiatives rather than flogging the Adams mine solution to death and trying to jam that on to unwilling municipalities.

The seventh point is around a general concern that we have over how we place Ontario on the cutting edge of competitiveness around environmental technologies. If you look at what's happening on the Ballard fuel system, that's going to have a massive impact on how our whole economy works two or three decades from now as you move away from a carbon/petrol-based economy on transportation. There are other areas that are equally important around building design, building technology, what is called green construction, and we want Ontario and its businesses to be at the leading edge of that so they can garner the benefits of business opportunities and also job opportunities.

On the SuperBuild, we're very concerned about the mandate that much of the investment there has got to be done in private-public partnerships. We think the SuperBuild fund should be delinked and should be applied for those facilities and infrastructure that are required.

The final recommendation that we would have, which we made before to other different committees, is that the province of Ontario should undertake a complete energy- and water-saving retrofit of all government buildings, including those controlled by agencies, boards and commissions. That is an area that we worked on, pioneering in the city of Toronto, about eight years ago. Of course, the massive increase in utility costs and natural gas costs now show the wisdom of spending a bit of money, doing the energy retrofit today and bringing those savings so that in some cases you'll have utility and energy savings of 60% to 70% as a result of those changes, and that's going to be to the benefit of the taxpayers as well as reducing the amount of electricity needed and generated and reducing the CO2 emissions into our air.

I'm going to allude a bit about the gun to the head, because we've talked a lot about gun to the head in dealing with some labour relations issues, and move on to what I think is important for us to look at collectively, regardless of partisan positions that people have on either side of the House.

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From having a role in the last nine years as manager of the Toronto-Central Ontario council-again as I've said, of the people who build this city, build the greater Toronto area-I've come to understand through being on economic development committees, through involvement at waterfront regeneration trust and other areas, just how complex a large urban space like Toronto is and the vision that people have been talking about, where we're moving away from competition between nations and even regions and we're moving toward competition of city states essentially, and a different kind of role that cities are going to play in the 21st-century economy and the 21st-century global life.

We are shortchanging ourselves if we continue in a role that does not adequately provide the financial supports for the kind of rich social fabric that our cities have enjoyed and need to enjoy in the future, the kind of economic diversity that our cities need to have, the kind of infrastructure investment, the education investment and the public health investment, that will allow Toronto and other cities in Ontario to play a lead role in this century. I guess that's the message I want to leave you with, and I hope that I'll be able to answer any questions.

The Chair: We have a couple of minutes per caucus and I'll start with the official opposition.

Mr Kwinter: Thanks for your presentation. I agree with virtually everything that you've said. I have a problem with it, though, in that it would be a lot more helpful to me as a member of the economic and finance committee that's in a pre-budget hearing to at least have some estimated costs of all your recommendations.

We had a submission earlier today by a group called People for Education. They had a wish list as well, but they costed it. So at the end of the day when they left, we had an idea of what it was they were asking us to find for them, so we had a quantitative amount.

When I look at your recommendations, virtually every one of them has a cost attached to it. You're asking the government to fund this, to fund that, to do that. Have you done any work at all as to what this is going to cost?

Mr Cartwright: We don't have the resources to do the kind of economic analysis that large organizations like the Bank of Nova Scotia and others do. Much of the information that's there is shared by other groups involved in the housing area, in the transit area and in education, so I don't have numbers to put on those.

But I guess, Mr Kwinter, I also want to make it clear that I don't want to get bogged down in the question of, is this going to cost $1 here or 98 cents there? What we want to do is paint a picture about the fundamental need for a new relationship between cities, large urban spaces, and the province.

Rather than having that message getting caught up in a disagreement over, I said it's going to cost $180 million and somebody else said it's going to cost $190 million, we want to bring to this committee-because as I said, finances are politics and politics are finances-that sense that there needs to be a different approach, that there needs to be a fundamentally new deal struck between the province and its cities and boards of education in order to ensure that our cities are strong for the rest of this century.

The Chair: Mr Christopherson.

Mr Christopherson: Thank you, John, for your presentation. It's interesting-you made how many recommendations?

Mr Cartwright: There were 10.

Mr Christopherson: You made 10 recommendations and, lo and behold, not one of them is a tax cut. If you'd been here this morning or yesterday, and certainly listened to the government members and some of the people they've asked to come here to speak, you'd swear that was the only thing that was going to solve the problem of dealing with the downturn. Whether it becomes a recession or not becomes academic actually. They're saying that everything is tax cuts.

Your folks are recognized, by and large, as receiving decent wages and decent benefits. Why are you not suggesting that tax cuts are something that should be of benefit? The government likes to say that it's not just the very wealthy in Ontario who benefit; it's the average working, middle-class family who benefits. You represent thousands of those very families. How come it's not one of your recommendations, John?

Mr Cartwright: I guess there are a couple of reasons. One is that what we're seeing happening is, as the costs are being downloaded, the taxes are being shifted elsewhere. So instead of taking it out of your pocket on a weekly basis, it now comes out of your property tax or your new user fees for your recreation centre, your swimming pool.

I remember in the early 1990s having debates with the federal Conservative government of the day around cuts to unemployment insurance. The issue was: "We've hit a deficit. Everything fundamentally has to deal with that." What I have seen, and to the best of my understanding, is that the actual total debt of this province has increased in the last number of years, and rather than having a reduction in revenue, which is what a tax cut represents, we would be recommending the opposite: there should be no further tax cuts. The deficit should be paid down once a new financial arrangement is reached with our urban centres. Because all the tax cuts in the world don't do you much good if your school is either overcrowded or being closed or if your kids have to suddenly start paying to be on a minor soccer team because the schools can't any more afford to give you that park or that school ground for free.

Mr Christopherson: They don't do you any good if you don't have a job, either. What we're seeing, of course, is that there are literally thousands and thousands of people who, in the last little while, have been given pink slips. For the government to say, "We're going to solve the issue of the downturn by providing tax cuts"-that's going to do absolutely nothing for those workers and their families. As you point out, there are increased costs all around them that they're paying for.

Mr Cartwright: There's an element of this, too. Without wanting to be a pessimist, the fact is that every day we pick up the papers and there's a new story about layoffs in the auto industry here, about downturns in the United States. I think we have to recognize that it's easy to throw money around during the boom, and when the boom ends, you've got to start talking about how to pay for that. If you cut taxes and reduce your revenue, which I understand has gone up something like 53% since 1992-the government of Ontario's revenue-and you reduce the income by tax cuts, when it starts to slow down and the American market no longer wants everything you sell in the same way, suddenly you're going to have a drastically reduced revenue. The result will of course be demands for cuts to more social services, more cuts, more downloading, and that's only going to hurt our people in the long term.

Mr Christopherson: Thanks, John.

Mr Doug Galt (Northumberland): Thank you for your presentation. I'm not going to criticize or get into a debate on the content of it, but I'm curious how I should respond to my constituents. My riding is Northumberland, the first riding immediately east to the GTA.

You're talking about more money for infrastructure in the city of Toronto or big cities. My riding is about 50-50, whether they're in small towns or cities, or on concession roads. Those roughly 50% on concession roads are part of the three million people in Ontario who pay 100% for the infrastructure of water and septic systems. They also pay for the inspection; there's no support or assistance for them. I'm going to have to ask them for money to support the big city for their infrastructure, from what I'm hearing from your comments.

I need to know from you what I would say to them when I vote that way, if I was to vote that way, to build the Toronto transit when they're on a gravel road. I need to know how I explain to small-town Ontario-from what I'm hearing from landlords, and I certainly know in the apartment building my mother lives in near Kingston, the vacancy rate is increasing significantly. There are affordable apartments there. What do I say to those landlords who are putting money into affordable housing in the city of Toronto? What's my response? How do I explain myself as a politician, to answer to them when I am asking them for money for what you're asking for?

Mr Cartwright: I guess you look them in the eye and you say, "Do you want to go to Ottawa or Kingston or Toronto and see something that looks like Detroit, or do you want to be able to go down to the Eaton Centre and take in the theatre or do something special or go down to a lacrosse game at the Air Canada Centre and feel, `Boy, this is a great place to be'?" Because that's really the kind of alternatives we're talking about.

A fundamental new deal between the province and municipalities isn't just about the city of Toronto; it's about all municipalities or regional governments. As some people are always fond of saying, there's only one taxpayer. So people, if they're going to end up paying for stuff out of property tax and having it loaded on there-it's still a cost to them, as compared to seeing services reduced, education being reduced, and the general safety and economic prosperity, because as Toronto is an economic engine, as we move toward the reality-and this wasn't preached at me from labour economists, by the way; this was somebody that Alan Tonks brought up from Texas, back when we had Metro, talking about the city state and how we have to transform into city states with very strong regional economies and that's going to be the basis. The hinterland in those areas will live or die based on that prosperity.

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We also represent, obviously, a ton of members who live not in the city of Toronto. The majority of our members live in the 905, in fact, but those members who live in Georgetown or Acton or Northumberland and drive into Toronto and work at de Havilland Aircraft or work at the General Motors plant, or who drive across the 401, are now having services like the 401 provided to them by the taxpayers of Toronto because the highways have been devolved to the city of Toronto. If fire trucks have to come for a fire on the highway, that's something that's now been devolved on to the city. So we're looking essentially at a fundamental new deal that really talks more about the integrity of urban spaces, of large urban centres, because the reality is that's the changing nature of our economy on a global scale.

Mr Galt: A very large number on concession roads in my riding-

The Chair: Mr Galt, we've run out of time.

On behalf of the committee, gentlemen, thank you very much for your presentation this afternoon.

CO-OPERATIVE HOUSING FEDERATION OF CANADA, ONTARIO REGION

The Vice-Chair (Mr Doug Galt): Our next delegation is the Co-operative Housing Federation of Canada, president Joyce Morris and Michael Shapcott. Maybe just state your names in case I didn't say them clearly enough. Welcome. You have a half-hour in total for presentation and questions from the three parties, which will be divided up equally among them.

Ms Joyce Morris: Thank you, Mr Chairman. Yes, you did get my name right. I'm Joyce Morris, and with me is Michael Shapcott.

Thank you for the opportunity to make a pre-budget submission on behalf of the 125,000 women, men and children living in non-profit housing co-operatives across Ontario. I am the president of the Ontario council of the Co-operative Housing Federation of Canada. With me today is Michael Shapcott, our manager of government relations and communications for the Ontario region.

I live in the New Generation Co-op in Kitchener. About 30 families find our co-op to be a good place to call home. If you were to visit-and, Ted, I'm still waiting for that visit; I hope every member of this committee will stop by-you would think that our co-op is a very simple but pleasant single-family neighbourhood, well maintained by residents who are obviously proud of their homes, and you'd be right.

The 550 co-ops in almost every part of Ontario come in lots of different shapes and sizes-high-rises, townhouses, single-family dwellings-but there's one thing that makes every one of them special: the members who live in the co-op own and manage their homes. Housing co-ops, much like farm co-ops, credit unions and our other co-op partners, are based on the self-help principle. We work together to operate efficiently as small, community-based businesses, yet we also take very seriously our responsibility to provide good-quality homes to low- and moderate-income people.

Since our appearance on February 3, 2000, in front of this committee, there have been two important developments regarding housing in Ontario that we would like to address in our pre-budget submission for the year 2001. The first is the Ontario Social Housing Reform Act, proclaimed on December 12, which completes the transfer of provincial social housing programs to municipalities. The second is the province-wide housing crisis, which has grown even worse in the past 12 months despite efforts by the Ontario government to encourage affordable private rental construction.

The Ontario government transferred the cost of provincial social housing programs to municipalities in January 1998. The Ministry of Municipal Affairs and Housing put the total cost at that time at $905 million. Last year, the ministry started billing municipalities for the cost of the provincial bureaucrats who administer Ontario's social housing programs.

About 250,000 social housing households are directly affected by the provincial transfer. As the rental market deteriorates in almost every part of Ontario, it is absolutely critical to protect this important asset.

The decision to download the cost of social housing to local taxpayers is a controversial one, and it is still difficult to find any social housing providers, municipal leaders, business representatives or others who support it. Nevertheless, the government pushed ahead with its plan. The passage of the Social Housing Reform Act starts the process of transferring the administration of social housing programs to municipalities. By June 2002, the transfer is expected to be finished.

We join with municipal leaders and others in saying that social housing programs should not be funded from the municipal tax base. The province has the responsibility, and the capacity, to fund social housing programs. Our first recommendation to this committee is that the funding for the entire cost of provincial social housing programs, including the cost of administration, be restored to the provincial level.

A significant amount of the social housing stock that the province is handing over to municipalities is already funded by the federal government. This includes the housing programs transferred from Ottawa to Queen's Park when the social housing transfer agreement was signed in November 1999. The federal money goes to the Ontario government. The province hands the money over to the municipalities. With the federal government already paying its share of social housing costs in Ontario, there is no reason why the provincial government should not also pay its share.

The co-op housing sector has a plan to administer co-op housing programs that was tabled at the last federal-provincial-territorial housing ministers' summit in Fredericton in September 2000. Our plan calls for a new national agency that would administer federal co-op housing programs. A high-level committee of officials representing Canada Mortgage and Housing Corp, the Co-operative Housing Federation of Canada and several provinces is examining this proposal. In meetings with the last two ministers of municipal affairs and housing, we have suggested that Ontario join this initiative by transferring administration of provincial co-op housing programs to this proposed new agency. Unfortunately, neither minister has chosen to take up this plan. But whether the province embraces our agency proposal or not, it should pay its fair share of the cost of social housing by restoring provincial funding. The provincial social housing program cost an estimated $905 million in 1997, according to ministry estimates. Municipal taxpayers should not be burdened with this amount.

Our second recommendation is that the province immediately top up the critical shortfall in the capital reserves of housing co-ops and other nonprofit housing providers. The capital reserves for social housing are supposed to be built up during the early years of a housing project. They help pay for necessary repairs as the buildings and their systems age. Any prudent homeowner puts aside a small amount of money on a regular basis to pay for major repairs such as a new roof or a new heater as they wear out.

The need for capital funding is most acute in the former Ontario Housing Corp stock, which was transferred to the municipalities on January 1 of this year. Much of the housing was built more than two decades ago, and repairs are needed to deal with the aging of the buildings and their major systems. Most co-op and non-profit housing in Ontario was built more recently. We have been able to build up some capital reserves over the years. However, policy decisions by the provincial government over the last decade have led to serious shortfalls in co-op and non-profit capital reserves. Queen's Park made a partial top-up several years ago, but the shortfall remains.

There is no reliable estimate on the dollar amount of the shortfall. Peel region did a study in 1999 and, based on a local analysis, projected that the provincial shortfall could be as much as $1 billion. This number could be high, or it could be low. This is the amount needed to top up reserves, not the annual cost.

Several municipalities have started a detailed audit of the provincial social housing stock in their communities. Co-ops are of course co-operating with them. We expect that this process will, in time, reveal a more accurate number as to the dollar shortfall in capital reserves. What we do know now is that the shortfall is substantial and that the province has a responsibility to make sure that capital reserves are adequately funded before the transfer of Ontario social housing programs to municipalities is complete.

We want to make a few comments about the rental housing sector in Ontario. We think it is important that this committee understand the scope of the problem facing renter households in order to appreciate our recommendations for the necessary solutions.

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The housing crisis has grown much worse in Ontario since we last appeared before this committee. Every indicator points to a crisis in the rental housing sector that is generating more distress and increased homelessness.

Overall, the Ontario rental vacancy rate dropped in the year 2000 from 2.1% to a critically low 1.6%. That means that throughout the entire province there were only 10,000 vacant units out of a total universe of 611,000.

When the province stopped the funding of new social housing in 1995 and cancelled 17,000 units that were under development, it said the private sector would pick up the slack. In 1996, then Minister of Municipal Affairs and Housing, Al Leach, confidently predicted the private sector would build 20,000 new rental units in the greater Toronto area alone. Only about 1,300 new private sector units have been built over that time, and most of these are high-end rental.

The private sector has failed to build even a fraction of the 17,000 units the Ontario government cancelled in 1995. Canada Mortgage and Housing Corp, using numbers from the 1996 census, estimated that Ontario would need about 80,000 new rental units from 1996 to 2001 to meet the needs of new rental housing. The private sector has built only 8,000 of these units, again much of it high-end rental.

The supply problem is made worse by two additional factors. First, the demolition and conversion of existing rental housing has reduced the amount of housing available, even as the need grows. Hamilton and Ottawa, for instance, have seen a net loss of hundreds of rental units in recent years. This trend can only get worse as the effects of the decision in 1998 to cancel the Rental Housing Protection Act continue to be felt.

Second, as of 1998 the province has cancelled more than 3,000 rent supplement agreements, mostly with private landlords. The most recent numbers are not available. Former Minister of Municipal Affairs and Housing, Tony Clement, has said the province intends to continue to cancel these agreements, which allow low-income households to find affordable accommodation in the private rental market.

On the income side, tenant households in Ontario earn, on average, about half of what owner households earn. In most parts of the province, tenant household incomes have been stagnant or have declined in recent years. Tenants have less money to pay rent, yet rents have continued to increase. The latest rental market survey from Canada Mortgage and Housing Corp shows that rents have increased in every part of Ontario. In most places, rents are climbing faster than the rate of inflation.

The supply squeeze means there are fewer affordable rental units available for a growing number of low-income households. The affordability squeeze means that tenant households have fewer dollars to pay for growing rents. So it's no surprise that homelessness has reached crisis proportions throughout Ontario. Barrie, North Bay, Peterborough, Ottawa, Kitchener and Toronto all report homeless shelters at or near capacity. The biggest increases are in the number of families, including children, that are homeless. There has been an increase of 130% in the number of children in homeless shelters in Toronto in the last couple of years. Every year, about 1,000 children will crowd into homeless shelters in Ottawa.

Over the years, the Ontario government has offered a wide range of incentives to private developers to build affordable rental housing. Rent controls were gutted, which raised millions of dollars for private landlords. A number of changes were made to development regulations. A $2,000 grant has been offered for every new private rental unit. In March 1999, the province announced a new rent supplement program to fund 10,000 new private sector affordable units. Money for this program came from the federal government. According to the latest figures, only 470 units have been funded to date. Last September, the province realized the private sector was not picking up the units, so it offered the program to co-ops and non-profit housing providers. However, when the federal dollars expire, the responsibility for the program will land on municipalities. They will either have to cancel the subsidies to low-income households or fund the units from the property tax base.

The former Minister of Municipal Affairs and Housing, Tony Clement, has acknowledged that the private sector has not been building new affordable rental housing, despite the provincial incentives. He even went to Dallas, Texas, to see how the private sector is working there. Dallas is not a model for Ontario, nor does the rental market in the United States offer much hope. The shortage of affordable housing is so severe that there are three low-income households for every available unit, according to US federal figures. The Texas Low-Income Housing Coalition reported just last year that "Texas's worst-case housing needs are at an all-time high." The US Department of Housing and Urban Development issued a major research report on January 19 this year which reported that there are "severe and worsening shortages of rental housing affordable to extremely low-income renters."

In Ottawa, the federal government is reported to be proposing a new cost-shared federal-provincial housing program, with funding up to $170 million. This program may be announced before the provincial budget. Co-op members have serious concerns about the proposed design of this program, and we are communicating our concerns to federal legislators. However, we believe that Queen's Park should set aside a funding envelope of $50 million annually to allow it to participate in a possible new shared-cost program.

Mr Michael Shapcott: I'll continue, if I may.

This alone will not be enough. Ontario should create a unilateral provincial social housing program, as it has in the past. Provincial programs have a record of success in creating good-quality, affordable housing.

The Social Housing Reform Act of last December allows municipalities to create new social housing, but they need provincial funding. We're proposing a two-part program based on one-time-only capital grants and rent supplements for qualified households. This program would be easier for municipalities to administer than previous provincial programs and would deliver the units Ontario so desperately needs.

Based on technical studies of the cost of building new housing, a provincial grant of up to $40,000 per unit would be sufficient to create new affordable housing. In some high-cost areas the full amount would be required, but in other parts of the province a smaller grant would be required, as land and construction costs are lower.

Co-ops are willing to be partners with the province in developing a new provincial housing program. We have 30 years of experience in developing affordable housing. We believe that one-third of any new provincial units should be targeted for new co-ops. Co-ops can make detailed recommendations on program design in another forum.

Our third recommendation to the committee today is that the province commit to a new provincial housing program to deliver 20,000 new units annually, and this would cost about $800 million.

In order to make sure these new units are affordable to the lowest-income households and to expand the number of rent supplement agreements, we're also recommending that the province fund a total of 20,000 new rent supplement agreements annually. As many as three-quarters of these units could be allocated to the newly constructed housing that would be built under our first recommendation, and the remaining 5,000 units allocated to low-income households living in existing private or not-for-profit housing. The total cost of this package to the province would be about $100 million annually.

The final number of units that would be created will depend on the actual rents in the various rent supplement agreements, but the overall spending envelope would allow for a monthly supplement of slightly more than $400 per unit. This would be a little less than what is actually required in some of the bigger urban areas like Toronto, but would be more than is required in other parts of the province-for instance, in Dr Galt's Northumberland.

Our fourth major recommendation to this committee is that the province create, using provincial funds, a new rent supplement program to deliver 20,000 units annually at a cost of $100 million.

We'd like to end with a few recommendations that we haven't been able to cost out, but we put them before the committee for your consideration. We believe there are other recommendations that also address other aspects of the private rental market as they affect low-income households.

First, we believe additional staff and additional offices need to be added to the Ontario Rental Housing Tribunal. Recently, there have been cuts to staff, hours and locations, which make it more difficult for tenants to gain access to this very important tribunal.

Second, we recommend to this committee that the shelter allowance portion of Ontario Works be brought to realistic levels. Shelter allowances for welfare recipients were cut by 21.6% in 1995. The majority of welfare recipients live in private sector housing, and I can say to this committee that I don't know of a single landlord who cut rents by 21.6% in 1995. With inflation, that cut now amounts to almost 30%. Rents for welfare recipients have continued to increase over the years, even as their shelter allowance has remained the same, and those rates were barely adequate in 1995. We believe the shelter portion of the welfare cheque should adequately reflect the true cost of housing, because of course the majority of welfare recipients do live in private rental housing. We think this is an urgent priority, and we urge this committee to accept that recommendation.

On behalf of Joyce Morris, I thank you for the opportunity to make these submissions on behalf of co-op housing members across Ontario. We look forward to your questions.

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The Chair: Thank you very much. We have time for a couple of questions each, I guess; a couple of minutes.

Mr Christopherson: Thank you both very much for your presentation. Again, affordable housing continues to be a main theme of everybody who comes in and talks about what is happening to literally millions of people in Mike Harris's Ontario who aren't benefiting from the tax cuts, which of course is the broadest number of people.

I have to say, on the off chance my mother happens to be watching, that I love co-ops. All my public life I've been very active in social housing and care passionately about the issue, but if I don't make that statement, I'm in deep trouble. You never know when she's watching.

I have first-hand experience, both as a local alderman and in my own family, to see the difference. In the building my mom is in, she was on the founding board. She served as president. She served as the representative on the regional council of your federation-very, very active. As I got to know the other women in the building, this has just made such a tremendous impact on their lives. I know that for virtually every one of them in that co-op, if they weren't there, given their circumstances, this committee would probably be ashamed of the quality of life those Ontarians would have to live in. There are those who really prefer the co-op as opposed to just any social housing because they like the idea that it is their home. They set the rules, they do the work, they take the credit and they take the responsibility. I can remember the outcry in the neighbourhood. Remember NIMBY? This building has turned out to be one of the biggest assets in that immediate neighbourhood. I can never say enough, and I'm glad you're here making the case.

I want to point out a couple of things. I want to give credit to the Liberals, if you can believe I actually said that, Monte. I know. Somebody help Monte back into his chair. But when you passed the Rental Housing Protection Act, I was an alderman on Hamilton city council, and I can remember dealing with that legislation. Everybody was really nervous about what this meant to people's freedom in terms of the people who owned the building, and we all walked very carefully. In most cases we still allowed it because there were other overriding reasons, but there were times when it was the right decision to say, "No, this particular building is not going to be lost to the community. There's housing stock here. There's no good reason for this, and we're going to maintain it." You know, the hue and cry wasn't as big as you would think it would be from those who weren't allowed to do whatever they damned well pleased with their property, and that was the way they saw it.

To lose that act-and it went quietly. Because there are so many big parts of the revolution, there are so many relatively smaller pieces, but so significant, that have been lost, and this is one of them.

I'll jump to my question. I had a lot more to say, but I know the Chair's going to cut me off if I try.

You mentioned some numbers. I watched some of the government members. You could see the reaction on their faces when they heard $800 million. These are big dollar figures. Would you just comment on your opinion of the implications for our society on the economic side? The heart side of things, even though it's St Valentine's Day, doesn't seem to necessarily get through to the government members, but at least let's try and reach their pocketbook. Would you just comment on what we face economically in Ontario if we don't make a substantive investment in affordable housing for those Ontarians who need it?

Ms Morris: I guess a lot of it still goes to the heart, but economically, if you don't have a place to live-studies have shown that if you're concerned about whether you are going to have a roof over your head next week, you're not concentrating on your job, you're not going to get ahead, you're not going to have that income.

You're looking at a rise in health care costs. You're looking at a rise in childcare costs in terms of fostering because parents can't cope. If I'm living on the street, I'm going to foster my children because I don't have a choice. Think about what it would be like if somebody told you you didn't have a place to go home to; they asked for your address and you couldn't give them one. That's the bottom line. It affects everything in your whole life. It's your place, and if you don't have that place, nothing else really matters. Everything ties into this. This is the glue that holds everything together. This is the keystone, affordable housing, knowing that you have your own front door and your own roof and that your kids have a safe place to live and a safe place to play.

Mr Arnott: Thank you, Ms Morris and Mr Shapcott, for your presentation. Thank you also for again extending the invitation for me to come and see the New Generation Co-op in Kitchener.

Ms Morris: I hope you will.

Mr Arnott: I hope my schedule will permit me to do that before next year's pre-budget hearings.

This process, as you probably know, is being broadcast live on the legislative channel, so people across the province are able to hear the presentations of people like you and our responses. I was just thinking that probably there are a lot of people who don't understand the fundamental concepts of how co-op housing works, how it's paid for and so forth. I was wondering if you would want to, in simple terms, just give us a primer of how co-op housing works in Ontario today for the benefit of the people at home who maybe don't understand the fundamental concept.

Ms Morris: Thank you for the opportunity. Co-op 101 in brief. Michael, why don't you?

Mr Shapcott: Housing co-ops are owned and managed by the people who live in the housing co-operatives. Therefore, our owners are in fact the people who live in them. We gather together and elect a board of directors, and they manage the affairs of the co-op.

However, to construct and develop housing in Ontario or anywhere is an expensive proposition. That's why the private sector's not doing it. It's one of the reasons why co-ops have been unable, without government support, to build. For instance, I just got today from Statistics Canada the latest apartment building construction price index for last year. They show that nationally, Toronto and Ottawa lead the nation in terms of an increase in the cost of apartment building construction. For co-op members, when they come together to create their co-op, they need some support in order to help with land costs and construction costs, and that support is given in the form of capital grants to co-ops, which in some co-op programs we've negotiated in the past with federal and provincial governments are either fully or partly repaid. In others, they're grants that are simply given out.

I want to say, going back to Mr Christopherson's question, that there is a benefit in terms of this public money invested in the housing co-operatives that goes beyond just the creation of much-needed affordable housing for the people who live in it. There are benefits in terms of jobs. We did a study a few years ago which found that for every 1,000 units of new co-op or non-profit housing that's created, about 2,000 or so person-years of employment are generated, and about $45 million in tax revenue back to municipal, provincial and federal governments. There's a substantial benefit in economic terms as well as the social benefit of housing.

Housing co-ops are owned and managed by their members. They remain a public asset, unlike, for instance, condominiums, which are bought and sold and where the price can increase. With co-ops, because they remain within the ownership of the co-operative corporation, the price never increases.

The Chair: Thank you very much. Mr Kwinter, I have the same problem with my chair. I think there's a lean in the floor at this end of the room, so don't feel uncomfortable because you've got a similar chair.

Mr Kwinter: Thank you.

I was interested in your comment about the summit that took place in September of the federal, provincial and territorial housing ministers. The proposal you made, is that just for co-ops or is it for all affordable housing?

Mr Shapcott: The proposal was strictly for housing co-operatives. We're of course the Co-operative Housing Federation of Canada. Our members are housing co-operatives. We'd be delighted if other non-profit housing providers would join with us, but at this point it's strictly a proposal we placed in front of the federal government. There is a committee, composed of officials from Canada Mortgage and Housing Corp, four provinces, not including Ontario, unfortunately, and the Co-operative Housing Federation of Canada that is negotiating at the national level the details of that agency. Ontario was at the meeting in the form of Minister Clement, but Ontario has not participated in that to date.

Mr Kwinter: That's what I was leading up to. When you say they chose not to take up this plan, have they actually turned it down or have they just not responded?

Mr Shapcott: Maybe I'll turn this back over to Joyce, because Joyce has attended meetings with two of the previous housing ministers and the issue has been raised. I don't know if we ever got a flat "no," but perhaps you could explain.

Ms Morris: We didn't ever get a "no." What we got was, "Send us a proposal. We'd be happy to read it."

Mr Kwinter: Has there been a proposal?

Mr Shapcott: Yes.

Ms Morris: To both previous ministers, yes. The proposal has been sent. We've sent offers of, "Let me sit down with you face to face. I'll answer your questions. I'll talk about the proposal." This is like a whole new opportunity, because part of the problem of course is that all the levels of government are saying, "We want to get out of administration of social housing." We're saying, "Pick us, coach. We'll do it." We've got the experience. We've got the years. We don't have the funding. We need help with that, but we've got the experience and we'd like the opportunity. We're willing to take on the responsibility of managing this, and if other forms of social housing want to join in, I don't see a problem with that at all. I think we'd be happy to embrace all facets of the stock.

The Chair: On behalf of the committee, thank you very much for your presentation this afternoon.

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NORTH YORK CHAMBER OF COMMERCE

The Chair: Our next presentation is from representatives from the North York Chamber of Commerce. If you could 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. Go ahead.

Mr Elie Betito: Let me first introduce myself and my confrere. My name is Elie Betito. I'm the president of the North York Chamber of Commerce. I'm also a senior director of a company called Apotex Pharmaceuticals, based in Ontario, with about 3,500 employees. The person sitting beside me is a director of the North York Chamber of Commerce and also executive director of the Black Creek Business Area Association. I'd like to start my presentation by first saying thank you for allowing us the opportunity to present.

The North York Chamber of Commerce represents a broad range of business, primarily located in north-central Toronto. We've got close to 1,000 members, but 60% of that membership is small and medium businesses. The North York Chamber of Commerce and its business advocacy council has been successful in isolating issues affecting business in the Toronto area and identifying resolutions which meet the needs of a diverse membership and still meet government mandates. It is with great pleasure that we participate in this pre-budget consultation process.

The North York Chamber of Commerce would like to address four specific issues of concern to our membership. These concerns include maintaining a competitive climate, the creation of a strong Ontario transportation infrastructure, an uncertain Hydro situation and fiscal responsibility.

On the first subject, in terms of maintaining a competitive climate, following world and North American events over the last two months, the membership of the North York Chamber of Commerce is concerned about the impact that the looming American economic slowdown will have on Ontario businesses. Over 90% of Ontario exports are to the US market, of which approximately 40% are auto-industry-related sales. Traditionally, these types of economic slowdowns have a relevant spillover effect on the Ontario economy. Traditionally, as the American economy moves into periods of stagnation or decline, cities and states to the south of us become more aggressive in pursuing our local businesses. This action is used to bolster their sagging economy. Combine these incentives used to entice businesses to relocate and compound them with our current property and corporate tax inequities, and it becomes quite difficult to retain businesses in Ontario and to attract new ones to open facilities locally.

Under current provincial Ministry of Finance and Ministry of Municipal Affairs and Housing legislation, our cities are unable to compete in business retention and attraction. One successful business development program used by American cities and states which is tax-revenue-neutral is tax incremental financing, TIFs. TIFs are a proven effective method of supporting business investment and promoting employment generation which has a minimal negative effect on local and state/provincial budgets. Increased tax revenue which is generated in a local area by local improvements is partially recirculated back into the specific community to spur further economic growth. The remaining portion is used by the city as general revenue.

The North York Chamber of Commerce urges the Ontario government to help businesses brace themselves for a potential spillover of the American slowdown and to help minimize the adverse impact on the Ontario economy and the workers who make it possible.

In terms of the question of property taxes and clawbacks, the North York Chamber of Commerce would like to see the government take the initiative in levelling the playing field for businesses in the city of Toronto by exercising leadership, first in mandating municipalities to move their tax rate structure to comply with the provincial range as a fairness within a set period of time, and in creating a maximum tax rate on business property throughout Ontario, not just among the 416 and 905 areas.

Most of our members are both business owners and residents in Toronto. We understand the need to protect residential realty taxpayers from property tax shock, but we also understand the reality that if too many businesses leave, more tax burden will be placed on the homeowner, and that adjustment would cause a huge problem. Businesses are moving out, not just from Toronto to the 905 area, but out of the province.

The North York Chamber of Commerce is seeking provincial intervention in remedying the whole gap between residential and non-residential tax rates within Toronto. Businesses which are entitled to reductions in their taxes under current value assessment need immediate relief. They have been paying more than their fair share of tax for some time now and they deserve to realize the full benefits of those reductions. Tax relief after they leave Ontario is no relief at all.

The North York chamber also recognizes that other businesses will have their property taxes rise dramatically under current assessment. The chamber believes that measures can be taken to soften the blow facing massive property taxes without relying on the clawbacks to achieve this.

On transportation-I didn't think I was actually going to make it today; it took me and hour and a half to get here-the gridlock and congestion we have in this city is a huge problem from a business perspective. The North York Chamber of Commerce applauds the provincial government on its recent commitment to create healthy community policies which address everything from land use planning to adequate provincial transportation infrastructure. It is not enough to create a job. The proper consolidation must extend toward moving the goods, bringing the labour force the facility and providing proper living environments for the people who produce the goods.

Our concerns continue to focus on the preservation of employment property for employment use and recognizing the importance of local employment opportunities. The decentralization of employment areas has been a vital ingredient to the success of Canadian cities over our American neighbours. Policies must be created to protect this occurrence and budgetary allowances must be provided to the Ministries of Economic Development and Trade and Tourism to become a full partner in the joint municipal program underway aimed at rebuilding our local communities.

Getting people to and from their place of business in a timely and efficient manner is an integral ingredient to a successful, healthy economy. The North York Chamber of Commerce is pleased to be managing the Transportation Management Association in the northwest section of the city of Toronto. It is a pilot project. The association's mandate is to seek transportation solutions currently preventing businesses from operating at full capacity. This is a public and private partnership involving the North York Chamber of Commerce, York University, Bombardier, Knoll, the city of Toronto and the city of Vaughan, as well as other interested parties.

We encourage the province of Ontario to join our efforts in creating solutions to traffic gridlock and alternative forms of employee transportation. The benefits of this successful pilot project are more efficient local transportation infrastructure and a healthier environment and employee base. The applications this association creates can be duplicated in other regions across the province where needed. We are doing a pilot project for all of the province.

Consolidated provincial transportation infrastructure plan: as part of the successful healthy community strategy, a fully integrated provincial transportation infrastructure must be developed. The North York Chamber of Commerce is seeking you to take back jurisdiction over transportation from the municipalities. A strong inter-municipal transportation infrastructure is required to ensure a strong GTA regional economy. Products and goods are manufactured by companies with plants across the GTA and southern Ontario, yet there is no coordinated transportation system in place to support people or product moving between the locations.

Public service and rail transportation is limited to moving people from the peripheries to the core, but not between our employment modules. This is a prime ingredient for development sprawl and the promotion of private car use. Only the provincial government, working with both federal and municipal partners, can efficiently and effectively create a regional transportation infrastructure which includes land, water, rail and air transportation covering southern and central Ontario.

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The North York Chamber of Commerce also encourages a provincial and federal transportation infrastructure partnership to gain access to the federal monies set aside for transportation and for the environment under the Kyoto accord.

The federal government currently has a budget surplus. If the looming American recession spills over into Canada, this will be the time to focus our efforts on rebuilding our provincial transportation infrastructure to take us into the 21st century. The job creation from such an undertaking should more than compensate for any shortfall from the auto industry. The result would be strong Ontario and Canadian economies, resulting in a dominant place in the global economy, once the American slowdown has passed.

Another important area, from our perspective, is the privatization of Hydro. The privatization of Ontario Hydro and the creation of private distribution corporations is a major concern of businesses across Ontario. Let us not fall into the same situation as California. corporations and smaller businesses are suffering because of an uncertainty regarding future power supply and rates. Stable energy sources and costs are essential for a strong and prosperous economy. The chamber urges you to revisit the subject of energy creation and distribution across this province.

On fiscal responsibility, the North York chamber would like to applaud your success in balancing the provincial budget. We anticipate the efforts you will make now toward reducing the provincial debt. Minimizing the debt will help us place the province on a strategically global platform and progressing through the 21st century.

The members of the North York chamber are counting on your leadership and innovation to carry us through the current fluctuating economic environment. Our commitment is to work with you in ways possible to see our great province weather these economic times and come ahead. Our membership welcomes the opportunity to contribute expertise and advice on provincially related business issues. This is a time of opportunity, a chance to raise the province to a position of economic stability required to maintain our premium standard of living. We are here to participate and we thank you for listening to our presentation.

The Chair: Thank you very much. We have approximately five minutes per caucus. I'll start with the government side.

Mrs Molinari: I'll start, and I'm sure Mr O'Toole has some comments as well.

Thank you very much for your presentation. You've indicated a number of challenges that we have and that we're going to be facing. Transportation seems to be the continuous one. I live in the city of Vaughan, so I drive here on a daily basis. It's only about 22 kilometres but it does take me an hour to get here all the time. So I experience it on a daily basis. Certainly, my constituents as well have called my office quite often from their cellphone when they're stuck in traffic and indicated all of their frustration.

York region, as a matter of fact, has just recently set up a York region transit system, which hopefully will assist in some of the gridlock within York region. The Greater Toronto Services Board also has some responsibility for this. Are you familiar with their work so far, and can you give some suggestions and some input on what they should be doing and what they should be looking at to resolve some of the issues you've indicated?

Mr Lorne Berg: Sure. The Greater Toronto Services Board has been a good start. They've been around for, I believe, three years now. They are looking at different issues, transportation being one of them, other types of services also included in this, consolidating all the different types.

The project that is currently being worked on, the Transportation Management Association, that was mentioned in the presentation, is one that Vaughan is actively participating in. These are linking up different forms of transit, different forms of transportation systems together so that they all work together and people don't have to come down or into locations separately. They're looking at carpooling, buses types of things, private enterprises of moving people between locations.

One of the projects that hasn't been looked at extensively through the GTSB is the smart pass, but that's one of the projects that is being promoted at this point. That's linking all the transportation systems-Vaughan Transit, Brampton Transit, Toronto Transit Commission, Mississauga Transit, all those together-so that it's a one-fare-type system that covers the whole region. This is a great starting point because they're in place now. It's just a matter of finding a way of consolidating the management and financial running of that system.

Mr O'Toole: Just very quickly, on the Hydro or power supply question, I just want to put it on the record clearly that the issue really isn't a privatization question; it's a deregulation question. I'm not trying to be smart. Also, clearly, it's absolutely the opposite equation than California. We have a supply surplus actually and we're at excess capacity. The Macdonald commission was started extensively to look at moving the debt around.

Without it sounding so much like a lecture, because the public is watching, about 60% to 70% of California's power is natural gas. In their first deregulation they froze the price, but those real costs were never passed on to the consumers and were carried as debt of the generators. The generators themselves are just loaded with debt, so the state has stepped in and is now buying the natural gas. The price of natural gas went through the roof. Our baseload is about 70% nuclear, which is, at the kilowatt rate, the lowest, cheapest and most efficient, apparently, on the planet. So I think it's important to get that on the record.

Our issue, on the retail side, is making sure that Hydro One-that's the old Ontario Hydro retail-doesn't set up a monopoly. I'd like your reaction because you're absolutely right: the actual sustainability and predictability of price as a cost of doing business is critical to you. I'm interested that you commented on it, but I hope you see that the government's attempt was to create competition, hold prices down, and there are some things on the generation side as well.

Mr Betito: We agree and we accept your comments. From a large business-look at us; we have 14 facilities across this city-it's important to have stability in pricing because, as you know, you have to plan for your next year's costs and so on. We're just raising the flag that we're concerned that if that issue-we know it's not the same as in California but we need to have it looked at and looked at carefully by the government.

Mr Phillips: I appreciate your presentation and I appreciate the work you do on behalf of Ontarians and the people of North York.

I'll start with the property tax. The Canadian Federation of Independent Business was in this morning to talk to us about this. They point out that for the businesses in North York, you're paying more property tax to the province, Mike Harris, that your property tax for education is higher than your property tax for municipalities. In fact, they point out here that if you're an industrial building worth $200,000 you'll be paying to Harris, in the provincial education property tax, $10,300 and to Mel and the group $9,546. I don't think a lot of businesses know that or have recognized that the bill they pay in property taxes, more than half of it goes to education and the rate is all set by the province. Mike Harris sets that rate by what's called regulation.

That business in Toronto pays $10,300. If you crossed the border into Mississauga, you'd be paying $6,200-identical businesses-and if you go up to Parry Sound, an identical business; you'd be paying $1,900. This is all CFIB documents.

As I say, I'm repeating myself slightly here, but for the chamber, I think sometimes your members may not all appreciate that when they get a property tax bill, over half of it goes to education and all of it is set by Mike Harris.

My question will be this: Have you met with the government officials and said, "Listen, on property taxes, over half goes to education. You're setting it all. You told us that there would be equity across the province, but I see that I'm paying $10,300, an identical business across the road in Mississauga paying $6,000 and up in Parry Sound paying $2,000"? Have you raised that issue with the government in your meetings with them, and have they given you any indication what their plans are to correct that?

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Mr Berg: Yes. Actually, for the last 18 months we've been participating on the city's business reference group on property tax reform. We were part of the group that put in the recommendations to the province for a set of tools on how to remedy the tax situation. Our members are aware of this split in the bill and which part goes to who. That is something that we've been quite clear on whether it be through our newsletter, reporting back to our association or through meetings. We've met with Mr Young twice already on this situation and Mr Eves once. We've met with the city staff on this issue. Yes, we're well aware of the figures. We do also realize that on the municipal end the tax rate is quite high in relationship to the places that you mentioned. So both ends have to be adjusted to bring Toronto and North York on to a level playing field with the rest of the province.

Mr Phillips: On the Hydro issue, I wish I could be as confident as Mr O'Toole is about how well this is going to go. I would just say the fact that the launch of the deregulation has been delayed twice always causes one some unease. The generating part of Ontario Hydro has frozen rates for five years, but the only way they were able to do that was to do some things with the books that the Provincial Auditor said did not follow normal accounting practices. They used something called their special privileges to essentially pre-write off a bunch of expenses. So there is a perception there is a rate increase buildup there just waiting for the deregulation.

I just got my own Hydro bill recently and the distribution part of it looks like it's gone up about 15% to 18%, just on the distribution part. Because distribution is a relatively small part of your bill, it doesn't look like much in total. We don't face the same situation as California did, which is shortage of production, but my understanding is that certainly all the new generation can be sold into the US, if they want to. So I'm not sure of all of the protections.

I think your suggestion here is, and I believe that we in the Liberal caucus have suggested, that the committee that's looked at this in the past may want to re-look at it, just to update themselves, allow a public airing of it, as I say, because there an enormous unease. The government got out at the end of the diving board, looked down, didn't like what it saw, got back off the edge of the diving board and went back out again, looked and backed off. I think it causes all of us some unease, but particularly the business community that is used to some certainty. So we in the Liberal caucus would follow up your suggestion. As I say, I think there's a way to do that in some public forum so that there can either be the comfort for you or, if it's a problem, we can become aware of it.

Mr Betito: I'd just add a comment to Mr Phillips's situation. We, as a company, were approached by a state to move part of our facilities and they were offering no hydro rates for five years and all kinds of other issues. So we are in a very competitive situation, as we've said in our brief. It is very clearly a situation that businesses need to know where their costs are going in the next few years. We want to re-emphasize that. That's why it's a very important element. We appreciate where you're coming from.

Mr Christopherson: I'll just pick up on the last point that was raised, because I was going to mention that also in terms of the bonusing that American cities are allowed to do under their laws. I know the government has indicated they are planning to do a complete rewrite of the Municipal Act, which is going to have incredibly significant implications, depending on what they do.

Having served on a local council, I've dealt with the frustration of not being able to do anything, and there are times when you want to be able to provide some incentive. But when you stand back and take a deep breath, you realize that at the end of the day it's probably best that we don't have bonusing allowed. All it really does is pit your community against my community of Hamilton, and at the end of the day some Ontarians are still going to be the losers. That's not a game we want to get into.

I just wanted to touch base and see if that's still where you are, or is your thinking changing around that?

Mr Berg: Our membership is not endorsing bonusing. What we look at are factors that are enticing our businesses out of Toronto, out of Ontario and out of Canada, and what is needed to keep them here. We don't believe that bonusing is the way to go. Historically, what happens in the States is that a company will be enticed to a certain city for tax relief for 20 years. Once that 20 years is over, they hop to the next city that's offering a 20-year term. That's not the solution.

One of the systems that was mentioned in this presentation was tax incremental financing. That does not go directly to the business; it goes to the area the businesses are in. It's based on an area being defined as an employment area, a total assessment being taken of the area and, knowing the revenue-generating capacity of that area, infrastructure money being invested into it by municipalities, the provinces and the federal government-or, in the American situation, by states and the United States government-and then benchmarking from there the increases in assessed value over a specific period of time.

What happens traditionally is that the area's assessed value will rise. A percentage of the increased revenue will be recirculated into that area to help pay for further progress in the area, and the rest will be reabsorbed into the municipality it comes from-whatever revenue goes to the province or state that it's in. So basically everybody wins out of that situation by a small investment in the area. What happens is that the areas then start attracting more businesses, or the ones that are on the fringe of either expanding or leaving usually end up staying in those areas and expanding. So it solidifies these areas as employment areas, which in turn creates more income for the different levels of government. It's not paying a company to stay in; it's actually developing the environment where the businesses want to stay.

The other thing is the tax situation, which is driving businesses out in that it goes for the education and municipal portion. It's just impossible at this point for businesses to know what's happening. Three businesses I deal with are each experiencing $1 million in clawbacks per year in their taxes. That $1 million is being used to subsidize someone else who has a cap on their taxes. So they are overpaying quite a significant amount to keep someone else in business. Those are the types of issues that help keep businesses where they are in Ontario, in Toronto and in North York.

Mr Christopherson: I would underscore tax reduction. We have the same situation in downtown Hamilton. The one thing we were going to benefit from the reassessment was that finally the property tax rates would be where they should be. They are strangling right now. If you have to rent a property in downtown Hamilton, you can't rent it for the amount of money it costs you just to pay your taxes. It's the same thing in Westdale. We have the same situation as you. There are other areas that are capped in terms of their increases, and nobody wants to see them damaged. But the government is the one that started this whole process, and to continue to leave areas like downtown Hamilton, and I use the word advisedly, in a depressed sort of mode is wrong, and I know it applies in other communities.

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One doesn't have to be a business owner or a member of the chamber to appreciate that the property taxes in downtown areas in a lot of our older cities are so far out of whack that businesses are leaving-you'd have to be blind not to see them leaving-and we're not getting new investment coming in because other communities nearby, along the QEW, have the ability to compete because they are at the other end of the deal. They've got newer areas, new development, they are closer to the centre of the province, meaning Toronto, and it's deadly for us.

I want to underscore the support we in the NDP give to that statement and the comment that something has to be done about accelerating that. If you just wait till the end-I think they accelerated it and beefed it up from eight years to five years in the last budget announcement. But even at the end of five years, the amount of devastation I can see happening in downtown Hamilton breaks your heart, because people want to invest, especially with the new city.

The Chair: Gentlemen, on behalf of the committee, thank you very much for your presentation this afternoon.

GREATER TORONTO HOTEL ASSOCIATION

The Chair: Our next presenter is the representative from the Greater Toronto Hotel Association. Could you please state your name for the record. On behalf of the committee, welcome. You have 30 minutes for your presentation.

Mr Rod Seiling: Thank you for the opportunity to appear before you today. My name is Rod Seiling. I'm president of the Greater Toronto Hotel Association. My intent is not to read my presentation, which I have distributed to you today, but rather just to table it and briefly go over some of the more important areas for you.

Just a quick overview: industry performance over the past number of years is much better-remarkably better, in fact. It's hard to believe that just six short years ago the industry here in Toronto and across Ontario was virtually bankrupt. There are a number of reasons for that, one of the major reasons being the tax policies of the government. Cuts in corporate income tax and personal income tax have been very important. When you are an industry whose customers require disposable personal income, putting more money back in your customers' hands is always a good move. So that's a very important factor in this.

Corrections to the Ontario property tax system are starting to bear some fruit, as well as a recommitment to tourism marketing via the Ontario tourism marketing partnership. While it's going to take years to reverse the damage done by cuts in the tourism marketing budget over previous years, it can be done. The federal government moved Canada from 13th place to seventh place in international arrivals, so we know that formula can and will work.

However, we do have some concerns. At the height of the business cycle, return on investment is still insufficient here for new investment. New investment is going to other areas where returns are better. However, as I said, the industry does appreciate the work of the government. We view it as work in progress.

You've got to continue to cut your taxes and, in that vein, we are very appreciative of the statement made by the Minister of Finance, Mr Flaherty, yesterday of the government's intention to continue on that announced stance. We applaud the government for its leadership in this area and urge it to continue to prod the federal government to do the same. In the end, Ontario and Canada must be seen as an attractive place for investment and job creation. We need to be competitive on a wide range of fronts: on taxes and on continued investment in infrastructure, especially health, education and transportation.

Now to the specific areas. Profit-sensitive versus profit-insensitive taxes is an important principle here. We want to focus and urge the government that it keep its attention on profit-sensitive taxes. Property taxes, capital taxes, minimum corporate taxes and payroll taxes are all insensitive to profit and act as a disincentive to attracting investment. If you look at chart number 1, you can see that the recent actions of the government are starting to move us in the right direction as it relates to profit-insensitive taxes.

Property tax: Canada is the undistinguished leader in property taxes. As chart number 2 shows, we are the leader as it relates to property taxes versus the share of GDP. Unfortunately, Ontario leads the way in Canada, and in Toronto we're the king. If you look at charts 3 and 4, on page 6 of my presentation, you will see why no new hotels have been built in Toronto in over 11 years, despite an accepted real need. You will see that we're basically the leader. If you look at chart number 4, you are looking at almost 13% of revenues going to pay property taxes. You can see why investors have been reluctant to put any new investment into Toronto. However, we want to commend the government for the steps taken to date. The system has been broken, as I said, for over 30 years, and the fix is not easy and will take time.

We have three areas of concern. The first is an assessment issue. OPAC has shown little desire or need to recognize the business value in hotel assessments, despite the fact that there is business value in every assessment. They have allowed a 3% deduction for management fee, but it's woefully not relative to the actual business value in every assessment. In fact, what's happened is that property tax for hotels has become an income tax. As our revenues have gone up as rates have gone up, our property tax has gone up and our evaluation has gone up almost in lockstep. As I said, we don't see any real break in that regard. In fact, it seems to be worsening. So we urge the government to take a look at recognizing the business value and give an order-the minister has the ability to change the methodology for valuing hotels.

The second area is the ratio of residential property taxes versus business taxes. Here in Toronto, businesses pay eight times that of homeowners. Compared to the surrounding area, which is about 50% less, you can see the competitive situation that develops.

The impact on competitiveness is not just here within the province of Ontario. It also stretches across the country and to other countries across the globe.

For example, the per room tax on a hotel in Mississauga averages about $1,500. If you move a couple of hundred yards down Airport Road, the only difference being you're now in the city of Toronto, the same per room tax on a very similar hotel is over $5,000. So you can see how that impacts on competitiveness within the marketplace and also the ability to attract investment here into Toronto. It's just not there.

However, we do appreciate the attempt by the government to inject some fairness and equity into this system. The recent passage of Bill 140 hopefully starts to address the inequity between business and residential tax rates. Many municipal politicians have recognized their inability to do it on their own and have said, "We need the province to do it. We might yell a little bit, but they ultimately have to solve this problem for us." So we congratulate former Minister Eves for his fortitude in introducing Bill 140 and we urge the new minister, Mr Flaherty, to monitor the situation very carefully and, if further action is required, to move on it.

The other issue creating an imbalance is the education tax. For businesses, the education tax portion of their tax bill represents over 50% of it. Again, we congratulate Mr Eves for accelerating the payment schedule for this year. As I think you well know, the government instituted an eight-year program to pay down the education tax so that businesses in areas where they are over the provincial average will get down to that provincial average. We urge Minister Flaherty to actually move that ahead, to accelerate the program even more, and to take one further step to ensure that the municipality can move into that field, because we've seen that in Toronto already-a request by the city for you, the government, to move on the education tax to allow them to move into the field, which literally defeats the purpose.

High property taxes inflict a long-term negative effect which ultimately threatens the economic viability of the industry here. Hotel investors expect a competitive return on investment or they will, and do, invest in other areas where they can get it. Operators know this and they do what they have to do to try to produce that return. Sometimes they are forced to cut expenses, which can impact on service. For an industry that lives on service, this is especially damaging and ultimately suicidal. You can end up turning a four-star property into a three-star, and a three-star into a two-star and so on. Toronto does not have a five-star hotel, you may be surprised to learn, and there is a correlation between that and property taxes.

Capital taxes: Canada is the only major country that we're aware of that levies a capital tax. Alberta has already recognized the damaging effects that capital taxes can play on the economy as it relates to jobs and investment and has announced a plan to eliminate it. Ontario has sent similar signals inasmuch as it has set a schedule for raising the threshold for small business over a number of years from $2 million to $4 million. Capital tax can be a real negative to attracting investment, as I said. Other countries, at least major countries, do not have one. It represents an extra line of tax, a tax that must be explained to potential investors. It's a tax that is insensitive to profit. It must be paid even if you're not profitable. Inasmuch as the tax calculation for capital tax includes loans, you might aptly say it's a tax on debt.

Accommodation industry investors require a large accumulation of assets to start up a business. As well, there is a long road to profitability. Therefore, capital tax acts as a major negative to attracting investors, especially when they can go elsewhere where there is no capital tax to pay. We urge the government to reduce capital tax rates as a first step in an identified plan to eventually eliminating the capital tax, period.

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Destination marketing: Ontario has recognized the importance of tourism marketing as an investment, as has the federal government. Such investments provide new jobs and incremental tax revenues, and there is ample evidence to document this and prove it conclusively. Ontario has increased funding to the Ontario Tourism Marketing Partnership to $70 million annually. Ontario can now leverage the federal government's money in the Canadian Tourism Commission and its $75-million fund.

The problem, however, is inadequate funding at the local level, as both provincial and federal programs are on a matching-fund basis. The problem impacts on Ontario as it is not earning the returns it can or should. I want to clarify: we are still earning a return; it's just that it's not to the extent that it can or should be. Quebec and British Columbia are moving into this void. Toronto, which represents almost 40% of tourism in this province, is underperforming. We're losing market share in the growth market as, you should know, is the province. Its convention and visitor bureau, Tourism Toronto, is seriously underfunded and ranks 43rd in North America, and that figure continues to drop.

In 1998 and 1999 the total number of visitors to Toronto was up about 5%, but we still lost market share. Based on traditional market shares, that loss is approximately 1.5 million visitors: 369,000 domestic, 784,000 from the US, and 381,000 from overseas. That represents a loss to the economy here in the Toronto area of almost $670 million. To the accommodation industry alone it is $337 million.

As well, it's interesting to note, the province's share was an $85-million tax loss. But, as I said earlier, this is not just a Toronto problem. While the final numbers are not in for 2000, we do know that Ontario lost 1.2% in market share for the year while BC gained 1.6% and Quebec almost 4%. It is as well interesting to note that the BC gain of 1.6% took place while Vancouver was basically shut down for the summer with the hotel strike. As I said, the federal government has proven that we can reverse the downtrends but it must be done before it's too late.

Canada moved from 13th to seventh in international rivals. Ontario has mirrored the federal program. The problem now is we need to find funding for local municipalities, local CVBs, to buy into programs so we can lever both the Ontario Tourism and Marketing Partnership funds and the Canadian Tourism Commission funds. In Toronto, it should be interesting to note, hotels spend over $150 million annually selling their respective hotels, so it's not a case of the hotel industry not paying its fair share; that money is spent on selling the property. We need the new funding to market the destination. The municipalities cannot be expected to fund this. Toronto already is giving $4 million; it used to give $8 million. They have had to cut it back, as I am sure you're all aware, with current funding problems. It is unlikely to give more and it will likely give less.

We urge the Minister of Finance to work with the industry to identifying a new funding mechanism for destination marketing at the local level. With key principles in place like dedication of all monies raised, a return to source and limits on the amount each funder contributes, we are sure that the industry can find a solution working together with the government.

Access to capital: Access to capital for the accommodation industry basically is non-existent. The only funding that exists exists on a personal basis. That means it must be fully secured. The Ontario bank capital tax earn-back provision is not working. The community small business investment funds focus on university research and labour-sponsored funds basically focus on high-tech. We do not have a recommendation, as greater minds than ours have worked with this problem, but we do want to draw this problem to the attention of the government. Without funding it's very difficult to grow an industry.

Cascading taxes: Cascading taxes, in other words, a tax on tax, are patently unfair. There are two examples I want to draw to your attention: (1) in Ontario, the 10% gallonage tax; and (2) federally, the GST on gasoline. We urge the minister to drop the gasoline tax. The $35 million it raises is insignificant to the government but means a lot to the industry where margins are in the 2% to 3% range. It really means that wholesale pricing to the hospitality industry is retail plus 10%. It also adds the perception that Ontario is a high-tax jurisdiction, and this can be very problematic because for many of the people who come here, whether it is on business for a convention or on a holiday, we leave the perception with them that this is a high-tax jurisdiction, and yet we're going to go back later and try to convince them to invest in this province.

Similarly, the GST on gas works the same way: 70% of our business is still rubber-tire-related, so with the GST increasing the cost of gasoline, it's not just a problem for ordinary business but it's a problem for the tourism business. We urge the minister to prod his federal counterpart to do something with the GST on gasoline.

Debt repayment: today's debts, as you all know, are the future taxes for our children. The government needs to remain vigilant regarding spending, and we congratulate it for eliminating the deficit. We suggest they need to identify a plan to eliminate the debt. This plan may change with the business cycle. We also suggest it must continue to invest in infrastructure, as I said: health, education and transportation.

Quality of life is a major factor in the investment decision-making process. Ontario must continue to be seen as a place where people want to live and work. We urge the government to focus on this and to identify a debt repayment plan along with a continued commitment to invest in infrastructure.

Payroll taxes are among the major negatives to hiring people. The government has shown leadership in reducing the employment health tax, workers' compensation fees and holding the line on the minimum wage. Ontario needs to continue to advocate with the federal government to reduce the EI premiums-they're an outright grab-on behalf of Ontario businesses. We also urge the government to reduce employer health tax premiums here to $600,000 to make it consistent with the paperwork threshold.

GST-PST harmonization: I referenced earlier the need to work to be perceived as a province that is not a high-tax jurisdiction. A single line of tax instead of two will help. In that regard, we urge the minister to look at the possibility of harmonizing the GST and PST, as long as it does not result in an increase in taxes to our industry.

In summary, the GTHA recommends that the government focus on controlling spending and reducing the tax burdens on corporations and individuals and that the focus return to profit-sensitive taxes.

Second, we urge the Ontario government to ensure that the methodology for assessing hotels for property tax purposes deducts the business enterprise value.

Third, we urge the Ontario government to continue to ensure municipal property tax rates for business are fair relative to residents.

Fourth, we urge the Ontario government to accelerate the paydown of the business education tax to those areas still above the provincial average.

Fifth, we recommend the Ontario government eliminate the capital tax or reduce the tax rates as the first step in a plan toward elimination.

Sixth, we recommend the Ontario government work with the industry to identify and implement a means of revenue generation for destination marketing at the local level.

Seventh, we recommend the Ontario government eliminate the cascading beverage alcohol tax and that it advocate to the federal government to change its cascading tax application of the GST on gasoline.

Eighth, we recommend that the Ontario government investigate ways and means whereby access to capital for business investment becomes available.

Ninth, we recommend the Ontario government outline a debt repayment program that includes a recognition of the need for investing in infrastructure.

Tenth, that the Ontario government continue to reduce payroll taxes in recognition of their negative impacts on job creation and that it raise the threshold for EHT to $600,000.

Finally, we recommend that the Ontario government examine the feasibility of merging the PST and GST, without an increase in taxes.

Thank you very much.

The Chair: We have approximately two minutes per caucus, and I'll start with the official opposition.

Mr Phillips: Just a comment on the methodology for assessment, and that's kind of a technical thing, Mr Seiling. Advice from the committee would be useful, but I glanced through it and my intuition would be that you have to work with the assessment corporation as well.

I have many questions, but your comments on focusing on taxes that are not-I think you called them-

Mr Seiling: Profit-sensitive, insensitive?

Mr Phillips: "That the focus returns to profit-sensitive taxes." That would run in the face of the thrust of the government, which is to put the focus on corporate income tax reductions and personal income tax reductions. Do you think it is wrong to be focusing there? Do you think the focus should be more on the non-profit-sensitive ones?

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Mr Seiling: Two things, first on the methodology: quite frankly, working with OPAC has been fruitless. They don't want to acknowledge it despite the fact that it is a real fact of life that there is business value. We're coming to the government because we haven't made any headway with OPAC.

In terms of profit-sensitive versus profit-insensitive, we believe the government has been focusing in that direction. In dealing with companies that look to invest in this province, prior to the announcements, our tax rate structure was uncompetitive. We simply weren't getting the investment. The taxes we're talking about were put in under previous governments. I understand why, some of the facts, it was put in. I don't think it made sense because it has been a disincentive to invest. I think ultimately the government is going to have to look at it, because when you talk to people who do invest and you try to explain to them why they have to pay tax if they didn't even make a profit, and they have to include their loans in that tax, it's a very difficult sell, especially when they can say, "I can go to another jurisdiction and not have to pay this tax. I think I'm going to head there."

I believe that it's something the government has to look at. On the other hand, they have to continue to work on cutting taxes to make sure that we are competitive. We saw what happened in Alberta the other day. We know in fact that some Canadian companies are already looking to moving assets into Alberta, and so we need to make sure we're competitive there. And, God forbid, if Mr Bush gets his $1.6-trillion tax cut through in the United States, we've got another problem on our hands.

Mr Christopherson: I had a number of other comments and questions, but I have to say that when you got to page 15 you stopped me cold. You're recommending that the government hold the line on the minimum wage. I'd like you to tell me in good conscience how you can suggest that since the American government has increased their minimum wage twice and theirs is now higher than ours, how you possibly come in here and suggest that people should continue for I don't know how long-it's already been six years now-how can you suggest that someone should continue to receive less than $200 a week to live on?

Mr Seiling: First of all I don't think your comparison is correct. We compete here in Ontario for workers by and large with other provinces in Canada, and until such time as the other provinces get up to what the minimum wage is in Ontario we won't be competitive. In fact, we've found that if you continue to raise minimum wage, what you do is eliminate job opportunities for young people.

We're in an industry that employs many young people. We're the port of entry. We give people their first jobs. We give people who are looking to re-enter the workforce or new Canadians their first jobs. We give them job skills, we give them life skills. Some of them will stay in our industry lifelong. You can come in as a waiter and end up being the president of the company, or you can come in and go somewhere else.

But the fact is, simply raising the minimum wage in actual fact, if you're getting it out of whack, which it was in this province for some time, you're doing a disservice to young people. They simply don't get hired, because there is only a certain amount of money available in your wage pool and people will just hire less.

Mr Christopherson: I'm sorry, but the studies that came out of the United States showed that that's not the case. That whole argument has been made. I'm sorry, I'm shocked. You're the first one so far who has actually come in here and said that it's OK to keep people in poverty. I really have trouble with that, sir.

Mr Seiling: Please don't put words in my mouth.

Mr Christopherson: You're running on the minimum wage, sir. That's what you're doing.

Mr Seiling: No. They can start there, but they can move on very quickly.

Mr Arnott: Thank you, Mr Seiling. It's good to hear that the hotels in Toronto are doing better, because you've made presentations to this committee over the years and I remember some fine presentations, but talking about the difficulty the sector was having, and it's good to see that things are improving.

You have recommended that we increase the threshold for businesses, in terms of paying the employer health tax, to $600,000 of payroll. I agree that that's something the government ought to consider, and I would hope that we can do that in the upcoming budget. You've asked that this be made consistent with the paperwork threshold. Can you explain to me what that means?

Mr Seiling: The paper threshold. When you file there's a-I'm not an accountant so I don't want to get technical, but there is a threshold for business under which that $600,000 you're filing is much different and all you would be doing is making it consistent with that number.

Mr O'Toole: I'm very fascinated. Over the course of time-I'm sorry that Mr Phillips isn't here, but he's made some references to the onerous industrial-commercial municipal tax rate. I just want to make sure I've got this down right. Apparently it's 8-to-1 commercial to residential in Toronto?

Mr Seiling: In Toronto it's 8 to 1. It's about half of the 905.

Mr O'Toole: We feel it's bad at 3.4 or something in Durham. That's commercial to residential. I think it should be emphasized that that decision is made-where? By the province or-

Mr Seiling: No, by the city.

Mr O'Toole: Oh, by the city of Toronto.

Mr Seiling: The municipality sets its own tax rates, yes.

Mr O'Toole: But that would mean, say, if you want to raise $1 million, and they're going to change apportionment, they'd have to move it to somewhere else. If they lowered it to, say, 5 to 1, where do you think they would move that to?

Mr Seiling: Under Bill 140, the city is limited to where it can move things, and we're very appreciative of that change, as I said. Many councillors have told us privately that they don't have the wherewithal to do that because there isn't the political will within the city, and I can understand that.

Mr O'Toole: But it's easy to blame Mike Harris, though, isn't it?

Mr Seiling: I guess they need to blame somebody, but the fact is, they have the power to set their own rates. We urge the government not to change those hard caps, because certainly we're aware that the city has been in to see various people within the government, trying to make the hard caps soft caps, and it would defeat the purpose of the legislation. Ultimately, if we're going to get investment back into Toronto, you're going to have to reduce the property tax burden on businesses. If you drive around Toronto and you get rid of the condo cranes, you find hardly a single construction crane on commercial or industrial building. Drive around the 905 and there's all kinds of it. There is a relationship.

I would also suggest one of the reasons there's so much residential building here in Toronto is, when you're faced with a residential tax rate of roughly 1.2, and that number can vary from 1.4 to 1.6 out in the 905 area, and if you're a builder looking at-

Mr O'Toole: Guess where-

Mr Seiling: Guess where you're going to build.

Mr O'Toole: That proves the point, though, because the condos in Toronto are taxed-

The Chair: Mr O'Toole, we've run out of time. On behalf of the committee, thank you very much for your presentation this afternoon.

TORONTO DISASTER RELIEF COMMITTEE

The Chair: Our next presentation is from the Toronto Disaster Relief Committee. Could you please come forward and state your name for the record.

Ms Danielle Koyama: My name is Danielle Koyama. I would like to thank you for allowing me to make this pre-budget submission to this committee today.

I'm presenting here today not only on behalf of the Toronto Disaster Relief Committee, but in memory of those who could not be here with us today. I make this presentation in memory of Al, who was found dead on a grate in front of Queen's Park on February 4, 1999; in memory of 20-year-old Jennifer Caldwell, whose burned body was found in the Don River valley in March 2000, along with the remains of her charred sleeping bag and her makeshift shelter; in memory of Stanley Fontaine, found murdered in his sleeping bag in front of Osgoode Hall in September 2000.

I make this presentation in the hope that you truly consider the following evidence and take the opportunity before you to help end homelessness in this province.

The TDRC: who are we? The Toronto Disaster Relief Committee is a group of social policy, health care and housing experts, academics, business people, community health workers, social workers, AIDS activists, antipoverty activists, people with homelessness experience, and members of the faith community.

We have worked with homeless people, studied homelessness, served on numerous committees and task forces, and have watched the homeless crisis worsen daily. We have bandaged the injuries caused by being homeless and have attended the funerals of many people.

Our founding members include nurses, university professors, housing advocates, lawyers and people who have homeless experience. Each member brings their specific experience and expertise to the collective efforts of the TDRC. Together we cover a wide range of the related issues and speak for a large and broad community. This community includes people who are or who have experienced homelessness, frontline workers, activists and concerned citizens; and, though centred in Toronto, spreads across the country. Our work has led directly to the formation of at least two other organizations, working hard and fast to end homelessness and ease the housing crisis: the National Housing and Homeless Network and the British Columbia Housing and Homeless Network.

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The TDRC is endorsed by over 400 organizations, including the city councils of Toronto, Ottawa-Carleton, Nepean and Vancouver, and the big city mayors' caucus of the Federation of Canadian Municipalities, the Federal Caucus of the New Democratic Party, the Canadian Housing and Renewal Association, the Co-operative Housing Federation of Canada, the National Anti-Poverty Organization, the Canadian Labour Congress, the Canadian Auto Workers, the Canadian Health Coalition and the Children's Aid Society of Toronto.

The emergency declaration: by endorsing the TDRC, these city councils, national organizations and citizens of Canada indicate their support for our declaration that homelessness in Canada is a national disaster. Our emergency declaration reads:

"That the provincial and federal governments be requested to declare homelessness a national disaster requiring emergency humanitarian relief and be urged to immediately develop and implement a national homelessness relief and prevention strategy using disaster relief funds, both to provide the homeless with immediate health protection and housing and to prevent further homelessness."

We are encouraging all people, organizations and levels of government to explicitly recognize homelessness as a disaster and to immediately take appropriate action in all communities throughout the country. We are also urging the federal government to declare homelessness a national disaster.

Why is homelessness a national disaster? We have asked ourselves these questions:

Why is this human crisis not treated the same as other crises where people lose their housing and have their family and community networks disrupted, like the ice storm in Quebec and eastern Ontario, or like the floods in Manitoba? Why are governments not responding to the physical and mental harm, including death, caused by homelessness?

Why are they ignoring the spread of disease such as tuberculosis, HIV/AIDS and hepatitis?

Why is it that our public officials fail to recognize that tens of thousands of people without housing and without adequate food and health care constitutes one of the largest and most serious national disasters that Canada has ever faced? Disasters, natural or man-made, are not restricted to countries in the tropics, but their consequences are similar.

The evidence that the crisis of homelessness in the city of Toronto, this province and this country has become such a disaster started to accumulate in late 1995 and early 1996. This included serious overcrowding of our day and overnight shelter system; a 38% tuberculosis infection rate among the homeless; clusters of freezing deaths of homeless people; a rise in overall morbidity, including malnutrition; the spread of infectious disease; and a rise in the number of homeless deaths.

A study conducted by Dr Stephen Huang of St Michael's Hospital and the University of Toronto's medical school found that homeless men in Toronto aged 18 to 24 had a mortality rate eight times that of the general population, and men aged 25 to 44 had a mortality rate four times as high. This is unacceptable.

Despite Canada's reputation for providing relief to people made temporarily homeless by natural disasters, our governments are unwilling to help the scores of thousands of people in Canada condemned to homelessness. We urge you to mobilize in the face of this homeless disaster and come to the aid of this one's victims before the next person dies.

What does it mean to declare homelessness a disaster? Declaring homelessness a national disaster and emergency allows all levels of government to immediately implement emergency humanitarian relief and prevention measures. The strategy must provide the homeless with immediate health protection and housing, and it must institute measures that prevent further homelessness. In any disaster, people are provided with emergency assistance, then permanent measures are implemented.

The solutions to homelessness, its elimination and prevention are: housing-all homeless people require adequate and appropriate housing they can afford; income-all homeless people require enough money to live on, for example, a job, job training, adequate pension or social assistance; support services-some homeless people require support services.

The first such measure must be a massive reinvestment in the construction of affordable housing. Money spent providing expensive services to people without a place to live is money down the drain.

Homelessness is a serious human rights violation. All human rights violations are acts that disregard human dignity and the rule of law. The moral and ethical codes of the world's religions, international law, the Canadian Charter of Rights and Freedoms, and federal and provincial human rights legislation oblige Canadians and Canadian governments to refrain from acts, omissions or other measures that result in violations of human rights. The very existence of people who do not have any housing is by itself a most serious human rights violation.

On December 4, 1998, the United Nations committee on economic, social and cultural rights in Geneva, in its review of Canada's compliance, issued its strongest criticism ever of any Western nation's human rights record. This severe criticism of Canada reminds all nations that the failure to address and prevent homelessness is a most serious human rights violation. Eight paragraphs in the committee's report on Canada refer to homelessness. One refers to the Toronto Disaster Relief Committee's national disaster declaration.

In paragraph 24: "The committee is gravely concerned that such a wealthy country as Canada has allowed the problem of homelessness and inadequate housing to grow to such proportions that the mayors of Canada's 10 largest cities have now declared homelessness a national disaster."

Paragraph 34: "The committee is concerned that the state party did not take into account the committee's 1993 major concerns and recommendations when it adopted policies at federal, provincial and territorial levels which exacerbated poverty and homelessness among vulnerable groups during a time of strong economic growth and increasing affluence."

In March 1999 the TDRC submitted a detailed report to the United Nations human rights committee. This is the other of the two major human rights review committees within the UN. The TDRC report had a clear and blunt title, Death on the Streets of Canada: A Report to the United Nations Human Rights Committee Regarding Compliance with Article 6 of the International Covenant on Civil and Political Rights by Canada. This report helped draw the UN committee's attention to homelessness, resulting in the following comment in the committee's final report on Canada:

"12. The committee is concerned that homelessness has led to serious health problems and even to death. The committee recommends that the state party take positive measures required by article 6 to address this serious problem."

In addition, there was enough evidence of the role public policy has played in Canada's homelessness disaster for an embarrassed Canadian government delegation to promise the UN to hold parliamentary hearings into the human rights concerns of the committee. The UN committee explicitly reminded the government of Canada of this promise in the third paragraph of its final report, issued on April 7, 1999:

"The committee welcomes the delegation's commitment to take actions to ensure effective follow-up in Canada of the committee's concluding observations and to further develop and improve mechanisms for ongoing review of compliance of the state party with the provisions of the covenant. In particular, the committee welcomes the delegation's commitment to inform public opinion in Canada about the committee's concerns and recommendations, to distribute the committee's concluding observations to all members of Parliament and to ensure that a parliamentary committee will hold hearings of issues arising from the committee's observations."

The Canadian government has not kept its promise.

Societies with homeless people amidst great prosperity have established and are maintaining homeless-creating processes: day-to-day normal mechanisms which result in people becoming unhoused and remaining unhoused, often for long periods of time. These are dehousing processes. The most basic human rights of a group of people within our communities are being violated. We cannot sit idly by and let this misery and death continue. The time to act is now.

The homelessness disaster in Toronto and across Ontario: in Toronto the disaster is flourishing. You will see it in a hundred ways every day, including the people panhandling for spare change to survive; the older men and women shovelling leftover casseroles from a soup kitchen into little plastic bags to take home to their rooming houses or squats; the wet sleeping bags left in a pile on a street corner; the permanent homes erected in alleyways, on grates, in squats, parks and under bridges; the church basements that are now open for emergency shelter, filled with people following a path of forced migration from church to church every night of the week in the winter.

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There is no longer enough room in Toronto's emergency hostel system to provide safe shelter for this disaster's victims. On many nights, the city reports that the hostels are totally full. It is dangerous and unhealthy to run any shelter system at 100% capacity.

In Toronto, the largest growing group of people suffering in this disaster are children and families. The report of the mayor's Homelessness Action Task Force, released a few years ago, tells us that families make up 46% of people using Toronto hostels in 1996. The Children's Aid Society of Toronto found that lack of adequate housing was a significant issue for almost one in five of the children coming into their care. In the Toronto Report Card on Homelessness 2001, an increase of 130% was found in the number of children in shelters; 6,200 children are living in shelters in Toronto.

The housing crisis looms ever larger all across Ontario, bringing more and more people to the brink of homelessness and then on to the province's streets. Where's Home?-the most thorough study and the latest data on housing conditions currently available-tells us that over 300,000 tenant households in Ontario are paying more than 50% of their incomes on rent. Many tenants are at immediate risk of becoming houseless. In most parts of Ontario, tenant incomes are falling even as rents rise faster than inflation. About 16,000 new rental units are needed annually, according to Canada Mortgage and Housing Corp, but almost no new affordable rental housing is being built. In Barrie, a town representative of many in Ontario, there was a 1,235% increase in stays at homeless shelters from 1994 to 1998. The Mission shelter in Ottawa recently had to open a palliative care unit to respond to the growing number of homeless deaths.

The State of the Disaster Winter 2000: A Report on Homelessness in the City of Toronto-this is appendix A, which all of you have received a copy of. The Toronto Disaster Relief Committee published the State of the Disaster report in October 2000. This report concerns itself with the dire situation in Toronto in the fall of 2000. Over 60 homeless women and men were interviewed to discover what it's like to be homeless in Toronto. The situation they described is disturbing and frightening. When asked for a solution to the problems they described in the shelter system, the most frequently given answer was this: "Open more shelter beds."

Overcrowding was one of the most common problems experienced by shelter users. It related to people's high stress levels and causes some people to be unable to use the shelter system, both because they cannot get in and because, if they could get in, they are unable to tolerate crowded conditions. Overcrowding also contributes to rampant infectious health problems such as continuous upper respiratory conditions and skin infestations such as lice and scabies. It is one of the primary causes of more serious problems such as increasing tuberculosis infection.

Hygiene facilities, lack of privacy and forced movement are other problems faced by people who are homeless. Virtually every homeless person we spoke with who was staying in a shelter had witnessed theft and violence. Two out of three of them had personally experienced theft or violence.

The most important reason for the explosive increase in people living outside is the lack of shelter beds in conjunction with the huge increase in homelessness generally. People living outside have made it clear that many of them fear the existing shelter system. For some people, living outside becomes a rational decision, the lesser of two evils. One of the most serious problems facing people forced to live outside is the lack of security of living space. People living outside are also less likely to have an income source. As a result, they face more difficulty obtaining basic necessities such as food, clothing or medication. The lack of hygiene facilities is also a great difficulty faced by people living outside.

As the recent epidemic of homicides illustrates, homeless people living outside face a high risk of violence. Since the end of May 2000, five homeless people have been murdered in Toronto.

In concluding this report, the Toronto Disaster Relief Committee made recommendations to the city of Toronto to respond to the crisis in the shelter system and on the streets. These recommendations included the order of a moratorium on shelter closures; the opening of 1,000 new shelter beds, which would increase access and decrease overcrowding to ensure that the existing shelters and the new facilities at least meet the United Nations' standards for refugee camps, as well as the North American disaster relief standards.

Appendix B is a death list. It is a sketch of known deaths of people who were homeless or marginally housed. It is only a sketch, containing confirmed information from reliable sources. There have been many more deaths than these, but information is difficult to confirm.

During the year 2000, 35 homeless people whose names we did know died. A distressing trend was the dramatic increase in murders of homeless people. Over a five-month period, five people were murdered on Toronto's streets. John Currie was beaten to death at University and Dundas. Casey Smith was shot to death in Moss Park. Adrian Fillmore had his throat slashed in a bus shelter. Stanley Fontaine was found beaten to death on the lawn of Osgoode Hall. Michael Tilley was beaten to death in a parking lot. None of them had safe shelter when they died.

On June 5, 2000, Adrian Fillmore was murdered in a bus shelter at the corner of Bay and Wellesley. On June 8, there was a moment of silence in the Ontario Legislature for Mr Fillmore. We would like to thank the legislators for this, and we ask that you put your feelings into practice by committing to real solutions to homelessness, so that no more homeless people are murdered.

Evidence of the disaster: disturbing evidence will now be presented to allow you to see for yourself the disaster we are facing. The following is an example of why we urgently need action.

Video presentation.

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Ms Koyama: This should not be our response to the growing crisis of homelessness. We need immediate relief and long-term solutions.

Emergency relief: in September 2000, the Toronto Disaster Relief Committee met with former Housing Minister Tony Clement. Following this meeting, the province turned over the former Princess Margaret Hospital to the city of Toronto to be used as shelter or housing for people who are homeless. We commend the province for this initiative; however, we ask that the province provide the needed resources to convert this building into affordable housing. We ask that the province continue this initiative and conduct an inventory of surplus provincial properties in Toronto and other cities to determine suitability for shelter.

The additional money announced by the province through the Off the Street, Into Shelter initiative provided some needed resources. However, at this point there is nowhere to go from the street. The city shelters are running at 95%-plus capacity on average and sometimes reach full capacity. There is no affordable housing to go to.

Long-term solutions: emergency response is necessary at this time, but it is not the solution. The Toronto Disaster Relief Committee supports proposals made by other organizations to restore funding for a social housing program. We are asking for a new program to create 20,000 new units, which would cost $800 million annually. In addition, we are calling for the province to fund a total of 20,000 new rent supplement agreements annually. This would ensure that the new units are affordable to the low-income households and would cost $100 million dollars annually. The total cost of this initiative would be $900 million dollars annually. How much are the lives of Ontarians worth?

The disaster of homelessness has been compounded by the 1995 cuts to social assistance. People can no longer afford to pay their rent and evictions are skyrocketing. The Toronto Disaster Relief Committee strongly urges you to restore the 21.6% cut and increase shelter allowances for welfare recipients to reflect the realistic cost of housing. In addition, we ask that access to the Ontario Rental Housing Tribunal be increased. Additional staff and additional offices are urgently required.

In conclusion, Ontario's homeless are not a special-interest group. The homeless and under-housed in Ontario do not constitute a special interest group. We are not asking for favours or charity. Adequate and affordable shelter is not a luxury; it is a basic human right that is being denied to far too many people in the province right now. You, the Ontario government, have the means to change that. We urge you to act, and to do so immediately. It is your responsibility to address these problems and crises. No one else has the means to do so. We, the people of Ontario, through our government, have both the means and the responsibility to act now. For you do to anything else, and for us to proceed in any other context, is to misinterpret why we elect governments in the first place.

We ask that you provide immediate emergency relief to the shelter system, provide the necessary support services, implement a new social housing program, build affordable housing, provide adequate income support measures and end mass homelessness in Ontario. Thank you.

The Chair: Thank you. There are two minutes left. I'll have one question. Mr Christopherson, it's your turn.

Mr Christopherson: You know what I'd like to do, Chair? I'd like to the give the presenter an opportunity to dialogue with the government members. We're already on side; I think she knows that. Why don't you ask them. Let's start getting some votes over there to do something about this. Why don't you ask her a question? Dialogue about this. Talk about this.

The Chair: Does anybody have a question?

Mr O'Toole: I appreciate your presentation. We've had a number of presentations, as you probably know, using similar numbers on the issue, and it is an important policy issue. I think many say that all levels of government have a job to do here.

It's not the appropriate time to talk about comments made by Mayor Lastman yesterday that may contradict some of the input you've given us here today, but certainly, as I've indicated by reading the papers and paying attention to my own community, it's not something I'm unaware of. I think you've given us an excellent presentation and I appreciate that.

Ms Koyama: You're welcome.

Mr Kwinter: I want to pick up on what my colleague just said. I'd like to get your reaction, because I think all governments have a responsibility, at the federal, provincial and municipal levels. I was really quite disturbed to see the reaction when the city council committee recommended that the city provide 1,000 beds in shelters and both the budget chief and the mayor said that there are 10% vacancies right now and there is no need for these. Do you have a reaction to that?

Ms Koyama: Obviously we were disappointed with the reaction of the mayor of Toronto. All I can say is that a lot of evidence has been presented to the city to indicate that we are in a crisis and we need an immediate response. I just hope that at the next committee meeting they do take part responsibility for ending this disaster and vote in favour of opening those new beds. But I agree, it's a responsibility of every level of government. So today I'm asking you, as the Ontario government, to please respond to this disaster.

The Chair: On behalf of the committee, thank you very much for your presentation this afternoon.

There is no announcement. This committee will be adjourned until 10 o'clock tomorrow morning.

The committee adjourned at 1727.

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