Committee Transcripts: Standing Committee on Finance and Economic Affairs - 2001-Feb-21 - Pre-Budget Consultations

Pre-Budget Consultations
2001-02-21_F026.htm    HTML

PRE-BUDGET CONSULTATIONS

ONTARIO ALTERNATIVE BUDGET WORKING GROUP

CANADIAN MANUFACTURERS AND EXPORTERS

ASSOCIATION OF MUNICIPALITIES OF ONTARIO

ELEMENTARY TEACHERS' FEDERATION OF ONTARIO

TORONTO BOARD OF TRADE

BMO NESBITT BURNS

POLICE ASSOCIATION OF ONTARIO

ASSOCIATION OF ONTARIO HEALTH CENTRES

CANADIAN FEDERATION OF INDEPENDENT BUSINESS

ONTARIO ASSOCIATION OF NON-PROFIT HOMES AND SERVICES FOR SENIORS

MEDICAL REFORM GROUP

CANADIAN NATIONAL INSTITUTE FOR THE BLIND

CONTENTS

Wednesday 21 February 2001

Pre-budget consultations

Ontario Alternative Budget Working Group
Mr Hugh Mackenzie

Canadian Manufacturers and Exporters
Mr Ian Howcroft
Ms Joanne McGovern
Mr Glen Pye

Association of Municipalities of Ontario
Ms Ann Mulvale

Elementary Teachers' Federation of Ontario
Ms Phyllis Benedict

Toronto Board of Trade
Ms Kerrie MacPherson
Ms Elyse Allan
Ms Helen Burstyn

BMO Nesbitt Burns
Mr Doug Porter

Police Association of Ontario
Mr Bob Baltin
Mr Bruce Miller

Association of Ontario Health Centres
Mr Gary O'Connor

Canadian Federation of Independent Business
Ms Judith Andrew

Ontario Association of Non-Profit Homes and Services for Seniors
Ms Donna Rubin
Mr Reg Paul

Medical Reform Group
Dr Ahmed Bayoumi

Canadian National Institute for the Blind
Dr Penny Hartin

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 Joseph Cordiano (York South-Weston / York-Sud-Weston L)
Mr John O'Toole (Durham PC)

Clerk / Greffière

Ms Susan Sourial

Staff / Personnel

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

The committee met at 1004 in committee room 1.

PRE-BUDGET CONSULTATIONS

The Chair (Mr Marcel Beaubien): Good morning. It is after 10 o'clock and we're only cutting the presenters' time, so I'd like to bring the meeting to order.

ONTARIO ALTERNATIVE BUDGET WORKING GROUP

The Chair: Our first presentation this morning is from the United Steelworkers. Could you please state your name for the record. On behalf of the committee, welcome. You have an hour for your presentation this morning.

Mr Hugh Mackenzie: My names is Hugh Mackenzie. I'm actually not appearing on behalf of the United Steelworkers; I'm appearing as the co-chair of the Ontario Alternative Budget Working Group. I'm not speaking for the Steelworkers in this regard. I think I get here as a result of having been on somebody's list as an expert presenter, not representing the unions-just to clarify that.

You've got a lengthy piece of paper in front of you. I'm not going to read through the whole thing. It provides some additional background to what I'm going to say this morning. I do have a couple of slides that I'm going to put up too, but all the information that's on the slides is on the piece of paper in front of you, so I don't have another set of pieces of paper to give you.

My main point this morning is that Ontario's fiscal situation could be described as heading into a very tightly constrained box as we move into fiscal year 2001-02. Essentially what I'm saying is that, unlike perhaps in other years, Ontario is facing a squeeze in its fiscal options. I'm going to go through each of them in a bit more detail as we get into the presentation, but I just want to summarize them to begin with.

The first is that the government is facing enormous pressures on the expenditure side. The quick and dirty way of describing it is that many of the chickens from the previous five or six years of significant expenditure restraints are coming home to roost, whether it's in the education sector, in capital spending on infrastructure or the fact there is now incredible pressure in the housing sector because of the cancellation of non-profit housing programs and the failure of the private rental market to provide any low-cost housing-a whole series of fiscal pressures on the expenditure side.

On the tax side, we actually have quite a significant legacy of tax cuts that have not yet had their full impact on the budget. I'll go into more detail on those, but they basically fall into three categories. There are cuts that were initially implemented in the year 2000 budget that only had a partial year impact in 2000-01 and will have their full year impact in 2001-02. Secondly, there are tax cuts for which there is already a firm schedule set out; for example, the small business tax cut. Then there is another set of tax cuts for which the commitments are quite definite but the timing is a little more vague. Those are, for example, the reduction of education taxes on property, phased in over a number of years; the reduction in corporate income taxes; the reduction in the small business tax rate; and a couple of other smaller ones.

The third side of the box the government finds itself in-I guess that's the best way to describe it-is that over the last several years the government has lived from quarter to quarter and from year to year in producing these nice, smooth-looking downward trends in their deficit numbers, on a fairly significant degree of manipulation of the government's finances and the accounts. The Provincial Auditor put the government on notice last fall that he wasn't going to tolerate it any more. So I think the government's ability to tailor its accounts to its fiscal situation is becoming much more limited, thanks to the Provincial Auditor's view.

But the most important squeeze is the squeeze on the rate of growth in the economy, and that will form the core of the presentation I'm going to make.

Let's talk in a bit more detail about the nature of the fiscal box the government finds itself in. First of all, in the area of unmet needs, we've had capital spending drop from $3.6 billion in 1995-96 to $2.2 billion in 2000-01-and these are nominal dollars. It's dropped as a share of GDP from 1.2% in 1993-94 and 1.1% in 1995-96 to 0.5% of GDP now. You don't have to look too far to find people raising concerns about the impact that's having on the quality of Ontario's infrastructure, whether you're talking to the Association of Municipalities of Ontario, which is raising significant concerns about the impact of capital spending restraints on the roads, or the concerns that Walkerton raised about the quality of Ontario's sewer and water infrastructure, and the list goes on.

In the elementary and secondary area, we're seeing a very tumultuous period in collective bargaining in the public sector. That's a direct result of the constraints on spending, which the government attempts to hide, but in fact the government's own numbers speak for themselves. The average real per student spending has dropped by $744 from 1997, which was the last year before the new funding formula came in, to the 2000-01 level.

1010

In post-secondary education we have this interestingly stark contrast between what the government says about Ontario when it's talking to potential foreign investors and what it's actually doing in its investment in post-secondary education. We rank last in Canada in our per capita spending on college and university education, and again you can see the impact. So that's another stress on the expenditure side.

On the health care side, we have this great mystery that there's more and more money going into the system, according to the government's accounts, yet it doesn't seem to be having much impact when you hit the street, whether it's concerns about long-term care, concerns about emergency rooms, lineups for specialized treatment, whatever.

In social assistance, the 21.6% cut the province brought in in 1995-96 has been taken up, thanks to inflation, to effectively a 30% reduction in living standard for people on social assistance. This is a fact that has emerged and grown during a period of unprecedented boom in Ontario. We're on the verge of a significant economic slowdown, with our supports for the least fortunate in our society at an incredibly weak level.

I mentioned housing in my introduction.

There's been a great deal said about the impact of budget cuts on Ontario's environmental regulation. In fact, some of these cuts are having to be reversed in the wake of Walkerton.

On the tax cuts side, roughly $5.2 billion in tax cuts were announced in the 2000-01 budget. Of their impact, $2.4 billion was not fully felt in 2000-01 and will be felt fully in 2001-02. That obviously affects one's projections of revenue.

The 2000-01 budget had a proposal to reduce capital gains inclusion to two-thirds from three-quarters. The federal government brought it down to 50% and Ontario has followed. That's a $770-million item that wasn't counted in the 2000-01 budget projections and that will be affecting the budget in 2001-02.

The promised cuts still to come: we're still living with the legacy of the 20% cut that was promised pre-election in 1999. It's anybody's guess as to what percentage of that cut the government thinks it has already implemented. A lot of it depends on whether you count the impact of introducing indexing as a tax cut towards that 20%. If you count that, it's about two-thirds done; if you don't count that, it's about half done. In the projections I've done, I've made the more generous assumption that it's two-thirds done. In other words, I've credited the benefits of indexing the tax parameters to the government's tax cut program, leaving only about a third left.

We have significant embedded promises for corporate tax reductions on all rates of tax: the general corporate tax, the manufacturing and processing and primary industry rate, and the small business rate. Only the small business rate is locked in to a specific schedule. The rest of them just have a target date and an unspecified schedule.

There are the announcements that were made in 1998 and 1999 respectively on reductions in the commercial, industrial and residential property taxes that the province levies for education. Those numbers are still to be implemented on a schedule as yet to be determined, but clearly the government has said all along that it intends to do it during this term.

Just one footnote to this: because the province doesn't actually admit formally that it's collecting property taxes for education on residential, commercial and industrial property, the impact of that cut actually shows up on the expenditure side, because as the province maintains its grant levels at the same level and reduces the amount of money that's raised from the commercial, industrial and residential sector from property taxes at its dictate, the amount it has to put into the system in grants to maintain the same level of funding for school boards goes up. That's the way that plays itself out.

I'm not going to go into great detail on the impact of the auditor's view of the government's accounting. That's probably a story for another day. I read it in the fall and then I re-read it when I was preparing for this, and I was actually stunned when reading it at the intemperate language for an auditor that is used in the auditor's view of the government's accounts. When an auditor uses phrases like, "This practice distorts the government's financial reporting," and concludes with a statement like, "If such multi-year items are in future recorded as expenditures in one year on a substance-over-form basis, I will have to reassess whether to then include a reservation in my auditor's report on the government's financial statements." That's pretty strong language for an auditor. That's equivalent to a tirade for an auditor. I think it speaks to the difficulties the government will experience if it tries to play with the estimates and play with its budget projections in order to minimize the impact of the other pressures on the government's balance sheet.

I come to the main thing I want to talk about today, which is the economic situation facing the province. When the budget was announced in May, I think the government was projecting 3.1% as a growth forecast for 2001-at least that was the consensus forecast it was reporting. By November, Mr Eves had increased his projection for 2001 to 3.7%. I understand that, under some pressure, the committee managed to tease out of the minister an estimate of 2.8% as the government's current projection for 2001.

I'm not going to play competing forecasts here. My own view is that that's still excessively optimistic. I have a great deal of trouble imagining how you can have two consecutive quarters of real growth less than 1.5% in the United States and not have that have a much more significant impact on the rate of growth here than the government is acknowledging. I've seen other estimates that are in the range of 2% or 2.2% for 2001. I happen to think it will probably be lower than that, given the severity of the slowdown which, there is widespread evidence, is taking hold in the United States. But even the relatively modest slowdown that the minister is admitting to now, as you'll see when we get into the projections-when you marry that with the tax cut promises that are still in the mill coming to fruition, it has a significant negative impact on the government's financial situation.

1020

I've taken these various pressures into account and looked at what the impact will be on Ontario's financial situation in various scenarios. Let me just say right at the outset that I have not taken into account any upward pressure on expenditures resulting either from the expenditure pressures that I talked about or the natural push upward of expenditures that happens as the economy slows down. So on the expenditure side, I've actually understated the likely impact of an economic slowdown on the government's financial situation.

I've looked at three different scenarios for economic growth. One is a base case that takes what the minister said a little over a week ago as gospel. He indicated a 2.8% growth rate forecast for 2001. We understand that the corresponding inflation assumption that's being used in finance to that number is 2.6%, so I used that. Looking forward-they won't look forward very far-I've used for this one the assumption that people have been using for a while of about 3%, which is consistent with the very slight slowdown that those who are whistling in the dark about the economic situation in the United States are going with at the moment.

I've then got what I call a "soft-landing" scenario. I put that in quotes in the paper because, while it's a term that describes a slowdown that doesn't result in a recession and has in effect become a kind of a term of art in the economic forecasting business, I don't like using it because every percentage point that the rate of growth of the economy drops is thousands of people out of work. For them, it's not a soft landing at all. But let me just go with the terminology.

Then on the fiscal side, I've got two different scenarios outlined. In one of them, I assume that the government recognizes the severity of the financial situation that it faces and suspends further implementation of its tax cuts. What that means is that those tax cuts that have already taken effect will continue, but the ones where no firm date has been announced yet for the cut will not be implemented, will be suspended until the fiscal situation improves.

In the other scenario, I assume that the tax cuts that have already been announced are implemented on an assumed schedule that has them done by the end of the government's term. There's no scenario built in here for any further tax cuts beyond the ones that have already been announced or promised.

In the so-called soft-landing scenario, I assume that real growth drops to 1% for two years and stays below the long-term projection for another year. So it's quite a severe slowdown but it's not a technical recession.

I've also got a scenario in here that assumes a recession that is equivalent in severity to the recession that hit Ontario in 1991-1993, just to see what would happen if we got really whacked. I don't believe that's going to happen, because I think some of the additional factors that contributed to the severity of that recession don't exist, principally the fact that we were digesting an unrealistically high price for the Canadian dollar at the time and we were also going through a period of significant adjustment to the structural changes resulting from free trade. I don't see that happening, but it's in here as a kind of "What if?"

I'm going to get up and sit down quickly so I don't screw up the mikes. I've got two charts. They are in your document, but I want to put them up so I can point at them.

The six scenarios I looked at are all outlined here. On the revenue side, you can see that the most optimistic forecast has revenue increasing from about $64 billion in 2000-01 to about $68 billion in 2002-03. That's assuming no tax cuts and that the relatively rosy economic forecast the government is using publicly persists.

The second line down: the difference between the dotted red line and the pink line represents the cost, at those growth rates, of the completion of the second-term tax cuts that have already been promised. You can see the kind of hit revenue takes when you proceed.

The next line down, the dotted blue line, is what happens if you suspend the tax cuts but the growth scenario is closer to the soft-landing scenario I've described. As you can see, you get a similar kind of revenue hit: about a $2-billion hit in revenue by 2002-03 results from that growth assumption.

The two bottom lines, the solid red line and the dotted green line, are the projection of what happens to government revenues if we get into a real, capital-r recession equivalent to the one that hit Ontario in 1991-93. As you can see, there is really a quite substantial hit to revenue at that point, particularly relative to the relatively rosy forecast. If you combine proceeding with the tax cuts and a real recession scenario, you end up with an actual reduction in revenue of about $5 billion over a two-year period.

I think that's an illustration of the extent of Ontario's exposure fiscally to variations in growth projections.

The easier number to deal with when you're looking at these numbers is to look at what happens to the deficit. I'm going to put that up now and then talk about it.

What the numbers tell us is that the only scenario that keeps Ontario out of deficit, going on for the next two years, is the one in which the minister's very optimistic forecast of economic growth turns out to be correct and the government does not proceed with the tax cuts that have been promised but not yet implemented. That's the only scenario that produces a balanced budget or better in each of the next two years.

If the government proceeds with the tax cuts, even with the optimistic economic forecast of the minister, the pressures on the revenue side are such that the budget will drop into a deficit of about $1 billion next year, and that deficit will persist for the year after that as well. That gives you roughly the same result as the no-tax-cut and soft-landing scenario.

The others are relatively self-explanatory. As we go through it, obviously the worse the economic growth situation is, the more substantial the hit on the government's revenue and the more substantial the hit on the bottom line, and the impact of proceeding with the tax cuts relative to not proceeding with the tax cuts is correspondingly the same between each of the two scenarios. The only thing I would add to that particular summary is to say that in the worst of these scenarios-a 1991-level recession and a decision to proceed with the tax cuts-we're into a scenario with a deficit that is very close to the deficit the government had in the first year it was in power, in 1995-96.

1030

So the province's finances are very heavily exposed, and there's no great mystery as to why that's the case. The government decided when it was elected that it was going to spend the fiscal dividend before it arrived. As a result, in spending the fiscal dividend before it arrived, the government also systematically eliminated it. Each time some fiscal flexibility emerged in the budget, the government took steps to eliminate it by accelerating the tax cuts, bringing in more tax cuts and undermining the revenue base of the province, to the point where last year we reached the peak of a boom with essentially no fiscal flexibility-very, very little fiscal flexibility-and we're paying the price for that now.

What conclusions do I derive from this? The principal conclusion is that it would be irresponsible, given this current fiscal situation, for the government to proceed with any further tax cuts. The government should at the very least suspend its program of tax cuts. If it doesn't do that, then in every scenario it produces a budget deficit, and the way this government views the world, that means it will produce a round of expenditure cuts in a system that's already significantly stressed. If we go beyond that point and get into a situation where Ontario is chasing George W. Bush down to the bottom, we are causing even more damage to Ontario's public services.

I think it's important to recognize something that's often left out of the equation except, as I said, sometimes when certain governments advertise the benefits of the province elsewhere. It's important to understand the significance of the public sector's contribution to the foundation of economic growth. I'm talking about relatively mundane things like good-quality roads, highways that have the capacity to carry the traffic that's required, an infrastructure that will support growth in residential areas, that will provide clean water-you can go down the list.

Secondly, there's a category of public expenditures that everybody acknowledges contributes significantly to Canada's economic advantage relative to the United States, most notably the medicare system, which, for example, my colleagues in the auto industry say is worth somewhere in the neighbourhood of $6 an hour as a difference in cost to the automakers.

The third category-again, each one a little more difficult to nail down, but of significant importance-is that for the long run there are significant limits to the extent to which we can disinvest in public education without damaging what the economists call human capital, which everybody says is absolutely vital to the long-term economic future of the province.

So I think we're at a bit of a crossroads in budgetary terms. As I said, it would be fabulously irresponsible for the government to proceed with these further tax cuts in this economic and fiscal environment. We all hope the minister's rosy forecast for economic growth for Ontario is accurate. Frankly, I don't see any cause out there for that optimism. Our economy is so heavily tied into the economy of the United States that it is inconceivable that we could roll along merrily at about 75% of the growth rate we've enjoyed long-term in Canada, while in the United States their growth rate is one third, in real terms, what their growth rate was. It's just inconceivable that this could happen.

I've noticed that people have gotten a little quieter in going on and on about the robustness of the high-tech sector as a defence for Ontario, relative to the slowdown in the American economy, since Nortel's announcement. I think what we're learning is that both on the investment side and on the economic side, fundamentally there isn't anything particularly special about the high-tech sector. It's not immune from economic cycles. It will go down when the economy goes down. In some respects, the high-tech sector may actually be more vulnerable to economic swings, because when things really get bad in a corporate culture, those kinds of expenditures may be considered to be the ones that are easiest to dispense with. I didn't agree with those taking the comfort last week; I don't think this week anybody can take any comfort from the high-tech sector. I think we've had demonstrated to us that it's as vulnerable to swings in the economy as any other sector is.

I'm sorry to be so gloomy, but I think there's a very significant choice in front of the government right now. As I said, I know it's very hard to talk to people who have the tax-cut religion about slowing down, but I think we have to keep our eye on the bigger picture here about the role that public services can play in the economy and the role they play in the lives of the people of this province.

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

Mr Monte Kwinter (York Centre): Thank you very much for your presentation. Just one comment: your first slide I don't have in my package.

Mr Mackenzie: No, you don't. If you'd like, I'll copy that for you.

Mr Kwinter: No, that's fine. I just thought maybe it was an oversight.

In your presentation, I didn't see any reference to debt reduction. Do you have any comments on that?

Mr Mackenzie: No. Debt reduction is a matter of priorities. In my view, it's the lowest priority. When you get the level of public services repaired, then you can think about debt reduction. In the long term, as everybody says, economic growth takes care of the extent of the problem that's created by debt. But I certainly wouldn't make any assumptions about retiring debt at this point. We're heading into what everybody acknowledges is at least a slight slowdown, perhaps a significant slowdown. In the modelling I did of the government's financial situation, I didn't make any assumptions about earmarked funds for debt reduction. I just don't think that's the priority at this point.

Mr Kwinter: We've had groups that have appeared before us who feel it's the absolute number one priority.

The other thing I wanted to talk about was, in your modelling, you use inflation as far as growth and program spending, which means that all of those groups that have appeared before us and feel they're severely underfunded, whether it be in health care, education, social services, housing, help for the poor-if you just stick with inflation, there's no increase for them at all; it's just the status quo. They stay where they are, other than inflationary adjustments.

1040

Mr Mackenzie: Yes, I'm making the assumption that on the expenditure side the government is not going to suddenly see the light. I'm not presenting here what I want to happen, what I would like to see happen; I'm making expenditure projections that I think are a realistic guess as to what the government might actually do, what the government might actually be planning. Much as I might like them to, I'm not seeing any evidence that the government is planning, for example, to make any significant inroads to address the impact of their cuts to education funding, for example. I'm not seeing any evidence to date, anyway, that the government has any intention of doing anything on the housing front. I wish that were not true, but the purpose of this exercise is not to say what kind of world I would like to see; really, it's to take the world as I think the government probably sees it on the expenditure side and ask, "What are the implications within the government's own framework of these various scenarios?"

Mr Kwinter: Effectively, your projections are very small-c conservative projections.

Mr Mackenzie: Absolutely. I maybe said it too quietly, but at the beginning I said that on the expenditure side I had made two, in my view, conservative assumptions; one was that even though I think the squeeze that's facing the government on the unmet-needs side is quite significant, I've assumed that they don't respond to that. I've also assumed that there's no built-in stabilizer effect on the expenditure side, as of course there would be, particularly with social assistance.

The Chair: Mr Cordiano, I'll give you a minute.

Mr Joseph Cordiano (York South-Weston): In a minute, your mention of a lack of capital spending I think is quite appropriate, because looking at the fiscal plans of the government over the last number of years, you rightly point out that there has been a significant drop in capital spending. I'd like your opinion. Is this drop in unplanned capital spending for some very basic needs-and you've pointed this out, but I think it's important to emphasize that if we are going through a period of slowdown in the economy, this would be the most appropriate area in which to increase expenditures for capital spending. Would you agree with that? I think that would be the greatest spinoff that public dollars could make in terms of economic growth in a slowdown.

Mr Mackenzie: I would agree with that, and I note with interest that we seem to have the governor of the Bank of Canada on our side as well. In Mr Dodge's speech to the Canadian Club a couple of days ago, he drew attention to the fact that the government sector had contracted from 1992 to 1998. Part of the reason for his optimism was his view that the government side of the ledger was going to start to grow again, and he specifically mentioned the capital spending deficit. Because we don't have an accounting system in the public sector that measures assets and their depreciation, we don't really know; we can only look at what we've been doing in previous years. But if we ever get to an accounting system that values assets and measures depreciation, my instinct would be that it would show for most of the 1990s we've been consuming assets.

Mr David Christopherson (Hamilton West): Thank you, Hugh, for your presentation. I just want to pick up on the issue of the amount of pressure that we've seen the government members face while we've been across the province in terms of making debt reduction the number one priority. If one assumes that they're going to continue to play to the crowd that they have so far, it means they're still going to have to go through with their tax cuts, as you point out is the likely scenario, but it also says to me that if they want to appease those pressures, they're going to have to do something beyond what they're already planning to do with debt, assuming that they're going to do something, even if they just give it a throwaway.

Other than the one scenario where you show positive deficit results and we're into a surplus, all the other scenarios are negative. I'd like to get on the record what the impact is, in your opinion, of the economic drag added if the government chooses to go ahead with tax cuts, go ahead with debt reduction and the only way they can do it with falling revenue, even under the soft-landing scenario, is to cut expenditures even further. What kind of world does that start putting us into when you look at the drag on the economy?

Mr Mackenzie: Basically, it puts the government in the position of chasing the economy downwards, because when you cut spending and cut taxes at the same time, the negative impact of the spending cut on Ontario is about five times the positive impact of the corresponding tax cut. The overall multiplier effects on the spending side are much better, much higher, between two and a half and three times the multiplier effects on the tax side. Then on top of that you have to take into account the fact that the leakage out of the Ontario economy of the benefit from a tax cut is significantly greater than the leakage out of the Ontario economy of the cost of a public spending cut. So if we got into a scenario where tax cuts are proceeding and expenditure is being cut, chasing the rate of growth down in order to keep the budget balanced, the government will be in the perverse position of reinforcing the negative trends in the economy. The government's actions will be driving the economy further into debt, will be driving economic growth lower. It would sort of be Keynesianism upside down.

Mr Christopherson: Would it be your expectation that most economists in the financial sector would be advising the government not to do that and to just go ahead and run a modest-I realize we're stepping one out here, but what kind of advice do you think they may be getting in this scenario vis-à-vis the debt if they went to those in the financial world and said, "This is what we're thinking of doing. What are your thoughts on it"?

Mr Mackenzie: I actually see kind of confused comments coming out of the financial community. Most of the commentators I've seen do their best to genuflect in the direction of tax cuts. They also raise concerns about public service quality. So you get in the same speech comments about the disastrous impact on the economy of congestion on Ontario's highways at the same time as they say that we ought to be chasing the United States income tax rates down at the same rate as George W. is driving them down. So there's a bit of a schizophrenia there. At the same time, when you sit around with a bunch of bankers, they will all tell you that debt reduction should be the number one priority.

Part of the problem is that the nature of the advice that's appropriate is very different if you're talking to the federal government than if you're talking to the provincial government, because even with the massive tax cuts that they campaigned on in the recent election, they made very conservative assumptions about economic growth in those forecasts and, unlike the Ontario government, the federal government didn't spend the fiscal dividend before it arrived.

So you'll get bankers saying to the federal government that debt reduction should be the number one priority, but they're doing that in the context of what they view as conservative projections about revenue growth and the likelihood that unacknowledged surpluses will emerge. They're really positioning themselves in the debate that will be ongoing in the federal context about what the size of the surplus actually is. In the Ontario context, you can't take the same logic and the same set of priorities and project them into this context, because we have a revenue base that has been significantly undermined and a fiscal strategy that has been designed to extinguish fiscal flexibility whenever it has emerged.

1050

Mr Christopherson: I have a quick question on jobs, if I can, Mr Chair.

The Chair: Go ahead.

Mr Christopherson: Thank you, Chair.

The impact that you expect on the part of the economy that you're most familiar with-that would be steel-and just overall how many-again, let's take all of this and turn it into some people issues. At the end of the day, under various scenarios, do you have a sense of just how many jobs we're talking about losing and how many of them are likely to remain out of our economy as opposed to bouncing back say two, three, four years out?

Mr Mackenzie: The loss in jobs will be significant. We're talking about in the tens of thousands of lost jobs throughout the economy. Our union represents a lot of people who work in the auto parts sector. I was just speaking with one of our reps in southwestern Ontario yesterday, who was telling me that there are already layoffs rippling through the parts sector in southwestern Ontario, well beyond the initial stone that hit the water, if you want, and that's before anything real had happened at Chrysler, for example. That's before anything real had happened at the CAMI plant. We're seeing just slight slowdowns in rates of production. These two-week temporary layoffs are backing up the pipeline and producing layoffs in input plants.

Steel is kind of a different story, because it's being whacked from every conceivable direction. Steel is being whacked by the auto sector, it's being whacked by the decline in the American economy more generally, and both in Canada and in the United States the industry is being whacked big time by dumped imports, which our current trade regulations don't seem to be able to deal with effectively.

Mr John O'Toole (Durham): Thank you very much, Hugh. It's good to see you and the story from the dark side kind of thing. It's interesting. You've sort of capsulized us as being the tax-cut religion. Quite honestly, it's a tax-cut discipline, technically. The same scenarios were talked about in 1995-96 with a very assertive policy of tax reductions. We had a very simplistic expression, if you're an economist, that tax cuts equal jobs. You'd have to judge that as a successful model of discipline, I would think, the outcome of over 800,000 new jobs, directly related to the more you increase the disposable income, the more you increase the consumption, a fairly simplistic model as you presented it.

You talked just briefly here about the threats in the steel industry internationally, really, and I would agree with you. So I'm going to move toward the whole model of global competition. We can't, certainly as a province-I guess the federal government has more say internationally certainly with respect to trade and trade issues and our competitiveness. But much of the discussion we've heard about is having the infrastructure to be competitive. Part of that is the capital tax side, the personal income tax side, and clearly in your agenda you don't get it. You really don't buy into it, and yet wouldn't you say your industry internationally has to be competitive? That's the first requirement. If it costs more, then you aren't going to sell more. It's just that simple. That may be too simplistic, as I'm not as eminently qualified as you are.

The first thing I'd like you to respond to is, do you need to be competitive in whole jurisdictional areas: R&D investments, capital costs, capital depreciation, capital tax generally? Aren't they part of what your employees really need to create jobs? That's not to say you have to embrace our so-called religion, but you need to address that.

I just want to refute your general assumptions on the economic, the macro view. You really did sort of misrepresent David Dodge. I'm looking at the Globe and Mail this morning-hopefully you've read it-and he says, "Despite the sharp drop-off in the demand for cars and communications ... `in the rest of the economy, incomes are high, employment is high and demand is strong.'" You've got to tell the whole story.

I'm just going to follow up on that, because this sort of legitimizes my own view. Dodge said here about the range of economic forecasts-I might agree with him more than you, so I might have dismissed your assumptions already since I read this earlier this morning. It says the assumptions are about 3% this year and a range of about 3% to 4% was forecast last fall. "Despite the near-term uncertainties, the bank remains positive about Canada's economic prospects for the year, given productivity increases"-that's the real growth in GDP, productivity-"and rising disposable incomes aided by tax cuts that are working to sustain" growth in domestic demand.

If you had listened to Flaherty's comments on the first day of the hearings, you'd recognize that the important contribution of domestic demand again comes back to disposable income. The high-tech sector is one of the sectors in Canada that I think is surpassing the 10% of the auto sector. The knowledge-based, infrastructure-based economy is something you haven't quite got your mind around. In my view, you're looking at the wrong part of the economy. The traditional economic strengths are weakening, so I just don't embrace many of your premises. Perhaps you can respond. Do we need to be competitive? Do tax cuts have any outcome, despite what David Dodge has just said this morning in the paper?

Mr Mackenzie: Let me respond to a couple of the things that you said. First of all, yes, we have to be competitive, but the definition of being competitive is much broader than doing an item-by-item tick-off and saying, "This is higher than this, so we've got to get it down; this is higher than that, so we've got to get it down." There is a great number of things that contribute to the competitive position of this province.

In the sector you seem most concerned about, perhaps the most important investment we make is in public education, which investment this government has cut back on. So, quite seriously, I'm having a little bit of trouble taking very seriously people who have been cutting back on our investment in human capital, in training, in post-secondary education, in elementary and secondary education, in child care and all those things that contribute to the development of our human capital. I have a little trouble listening to people wax on about the benefits of the knowledge economy and the strength that Ontario brings to that, when the drivers of that particular part of our economic future are being undermined.

Let me say, secondly, that I think nothing epitomizes the tax-cut religion better-nothing illustrates it better-than the wilful, deliberate ignoring of the unbelievably powerful impact that the growth of the American economy has had and the growth of Ontario's exports to America has had on our economic performance in the last five years. Just to give you an example from a couple of examples that I cite in the paper that I didn't talk about: something in the order of for every dollar that our GDP has gone up since 1995, exports to the United States have gone up by 80 cents. So this is significant growth in exports. That, if you talk to a macroeconomist, is what's known as an economic driver. That's something that's external to the economy that is driving the performance of the economy.

Just another set of numbers: in 1995, roughly 36% of Ontario's GDP was exported to the United States. In five years, that has increased to 46%. So not only were we tied to a rapidly growing American economy in the late 1990s but we are tightening those ties and increasing our exposure, which is having a double impact on the economy.

With that as the background, I just think it's whistling in the dark for people to say, "Well, we've got the fundamentals right; we've got tax rates down and we've got this." It's like we're walking down the street and the goblins are lurking in the alleyways as we walk past and we're just whistling away, saying, "Gee, we're just happy and we're just going to ignore the goblins." The goblins are there. The goblins are growing at 1% this quarter, according to most American forecasters. I think you're dreaming in technicolour if you think that's not going to have an impact.

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

1100

CANADIAN MANUFACTURERS AND EXPORTERS

The Chair: Our next presentation is from the Canadian Manufacturers and Exporters. I would ask the presenters to come forward and state your names for the record, please. On behalf of the committee, welcome.

Mr Ian Howcroft: Good morning, Chair, and members of the committee. My name is Ian Howcroft, vice-president of the Canadian Manufacturers and Exporters, which was formerly known as the Alliance of Manufacturers and Exporters Canada. We changed our name last fall. With me is Glen Pye, director of taxation for Nortel. Glen is the chair of the Ontario division taxation committee. Also presenting this morning is Joanne McGovern. She is CME's director of taxation.

We are going to divide up our presentation this morning, with me providing some opening comments or introductory remarks. Joanne will follow up with some highlights of our recommendations and Glen will provide some further information on the recommendations and give some reasons as to why we feel they're necessary. After the formal presentation, we'd be pleased to entertain any questions the committee may have.

It's important to note that the manufacturing sector continues to drive the economy in Ontario and in Canada. Ten years or so ago, many had written off the manufacturing sector, but to paraphrase Mark Twain, the rumours of its demise were much exaggerated. One thing is certain: manufacturing has changed dramatically and it will continue to change. Over 1 million individuals are directly employed in this sector and almost 2 million others are dependent on the manufacturing sector for their jobs.

CME is the representative and the voice of manufacturers and exporters in Canada. Our members produce 75% of Canada's manufactured output and they are responsible for approximately 90% of our exports. Our members come from all sectors of manufacturing and all areas of the province and country. We represent the very large to the very small, but the majority of our members in pure numbers would be considered SMEs.

CME has a very active tax committee which comprises almost 100 individual from our member companies, and they provide us with policy and technical expertise. We have identified and prioritized several key areas in the Ontario tax system that require immediate attention. The recommendations we have outlined in this submission are necessary for the province to maintain a healthy economy and improve the competitive environment for manufacturers and exporters. This is even more important, given the amount of economic uncertainty we're currently seeing and experiencing.

In addition to the specific tax issues we're going to address, we also want to highlight a couple of other points, one being the skills shortage issue. Successfully resolving this issue is essential to the success of our members and to the success of the province. The situation is going to get worse before it gets better. The magnitude of this issue will increase as a significant proportion of the workforce will begin to retire in large numbers over the next few years. In fact, by 2020, 50% of those currently working will have left the workforce.

We had a meeting last evening, and the consistent message from the senior HR executives was that we have to deal with this issue, we have to come up with solutions to the skills issue. The average age among these companies was 47, so they're going to be leaving very soon and in large numbers at the same time.

It's essential that the government recognize time-sensitive skills shortages and the needs of education, health care and infrastructure and develop a long-term plan for each that is coordinated. These programs must be prioritized and balanced within a fiscally responsible economic strategy and a globally competitive tax system. Furthermore, we must all address the issue of infrastructure. The government must take a lead role. We are pleased that the government is dealing with this issue and is looking for innovative solutions-by that, I will cite SuperBuild-however, a lot more must be done. I'll cite one example that we are quite concerned with, and that's the deregulation of the electricity market here in Ontario. The government has started down the road to introduce a competitive marketplace, but it must ensure it continues down this road in a planned way. We have seen what can happen in other jurisdictions because of a lack of planning. Ontario can ensure that we escape these experiences by taking the necessary steps in a planned and confident manner which will attract investment and create a competitive electricity market in the province.

Those conclude the introductory remarks, and with that I'll ask Joanne to talk about some of our recommendations.

Ms Joanne McGovern: I'm Joanne McGovern, director of taxation at Canadian Manufacturers and Exporters. I'd like to start off by first commending the current government with respect to the efforts they've taken in the past years in tax reform and making Ontario a better place to do business and to live. Our members recognize this, and we support and encourage these measures, specifically, first of all, the act that was passed in 1999 to balance all provincial budgets-that is recognized as a very positive measure-as well as the commitment of the government to pay down the current provincial debt. In saying that, CME members do encourage the province to pay down the debt at the same time, or in conjunction with, targeted tax reform.

I'll go into our four main recommendations, which have come from our tax committee, what we recommend for the 2001 budget in terms of the four main areas of tax reform.

Our first recommendation is to legislate the 8% corporate tax rate which the government introduced last year, and at the same time to also legislate the personal income tax measures and reductions that were also introduced last year.

Our second recommendation is to eliminate the capital tax and the corporate minimum tax. Those are two investment-unfriendly taxes that the CME has been advocating eliminating for many, many years in many of these submissions. We strongly recommend that this be the year to eliminate both of those taxes. Glen will go into a little more detail as to why we believe this is a good measure to go forward with.

Third, we believe that improving the existing capital recovery system would be advantageous to manufacturers and exporters, and business in general, in Ontario. Just to make note, there is a system in place called capital recovery adjustment. It is a good system; however, we do have some specific recommendations to improve that system, to make it better and more advantageous for manufacturers.

Last, and Ian alluded to this, is the skills shortage issue. We strongly recommend that governments get together and come up with a long-term strategy to address not only the skills shortage but retraining and initial training. That's an area that will directly impact our members as manufacturers. As Ian also included, 2020 will be the crisis point.

Those are our main areas of recommendations. We also have-you can turn to your submission-five administrative recommendations that I won't go into in a lot of detail, but they're also included in our submission, and we believe looking at those administrative issues will also improve the effectiveness of the general tax system in Ontario.

I'll now turn it over to Glen Pye.

Mr Glen Pye: Good morning. My name is Glen Pye. I'm the chair of the Canadian Manufacturers and Exporters Ontario division tax committee. What I'll do is give you some background on our various recommendations. I'm going to follow the order that you have in your submission.

Our first recommendation involves corporate income tax. In last year's budget, Ontario announced the intention to reduce the corporate income tax general rate from 15.5% to 8% and the manufacturing rate from 13.5% to 8%. We certainly support this initiative and think it will provide a lot of benefits to the manufacturing community. What we are recommending now is that the province actually legislate the timetable for the reduction of these rates. They do have a targeted rate of 8% for 2005, but the way business decisions are made is based on known tax rates, and as long as there isn't a schedule for these rate reductions, Ontario won't enjoy the full economic benefits of this planned tax reduction. By having that certainty out there in a schedule that the province can live with, I think you'll find that the economic benefits will be achieved.

Our second recommendation involves the capital tax. We suggest that Ontario eliminate its capital tax. Capital tax has been proven internationally, through various studies by the OECD and others, as a disincentive to investment. Capital taxes are profit-insensitive and can impose a substantial burden on companies. Also, they're just not well understood by the foreign investment community because it's not a tax that exists in very many jurisdictions around the world. In fact, Alberta has even legislated to remove their capital tax this year. So we do suggest that that tax be eliminated.

1110

Our third recommendation is on capital recovery for business. We're recommending improvements to the capital cost allowance system to enhance capital investment and employment. Our recommendation would be for Ontario to either reintroduce the current cost adjustment, which provides an uplift in the cost of equipment, to provide enhanced write-offs similar to what Quebec has-they've extended their similar policy of 25% uplift through 2005-or alternatively to provide a two-year write-off for new investment in manufacturing equipment and machinery. We think that would provide substantial benefits and investment in Ontario.

Our fourth recommendation involves the corporate minimum tax. This is something that we have made recommendations on over the last number of years and had various discussions with the province. We continue to feel that based on how little revenue this particular tax raises for the province, it continues to be a very highly visible disincentive to investment in the province. Globally, minimum taxes are not very well received by the business community and probably create a barrier to foreign investment in Ontario. We think that really for the administrative complexities and the minimal revenue that's raised here, it might be a tax that it would be well to dispense with.

On the personal tax side, we certainly recognize and commend the government for making significant progress in addressing the excessive personal income tax rates. We also appreciate Ontario's efforts in encouraging the federal government to do so as well. We do recommend that Ontario legislate the tax reductions that were announced in their 2000 budget, as well as the previously announced full inflation indexation for tax brackets. We also continue to feel that Ontario should repeal the Ontario surtax on high-income earners, formerly known as the fair share health care levy. This would be similar to the federal government, which has now indicated the intention to remove its high-income surtax.

Our administrative recommendations follow in the submission that you have. I'm just going to go through them briefly. Something that's been a long-standing recommendation-I think we've appeared many times talking about it-for business, and manufacturers in particular, the replacement of Ontario's retail sales tax with a value-added tax would provide substantial benefits. It would increase the competitiveness of Ontario exporters when competing in foreign markets, where their competitors obviously are in value-added tax jurisdictions. Secondly, it would help Ontario business competing in the province, where they compete with foreign competitors. A value-added tax has a lot of economic advantages for business and would result in additional investment and employment.

In the area of property taxes, industrial and commercial taxpayers continue to pay a disproportionate share of the tax burden. This has been recognized by the province. We feel Ontario should continue to work toward a simpler and more competitive property tax system. We recommend that municipalities should be required to reach provincial fairness ranges within five years and that municipalities should not restrict warranted tax reductions to fund caps on tax increases.

On the Ontario R&D superallowance, in the last federal budget the federal government subjected Ontario's R&D superallowance to federal corporate income tax, minimizing the benefit of this program. We've made our thoughts known to both the Ontario and federal governments, but we'd like to see the governments co-operate in this area in encouraging R&D, in that they should not really be imposing additional tax burdens on each other's incentives. Additionally, we do have an administrative matter regarding the superallowance, where it could be simplified and more effective for the province if it were blended into a single rate on a non-incremental allowance.

On capital gains and stock options, we're pleased that Ontario has announced its intention to parallel the federal government's 50% capital gains inclusion rate, effective October 17. We're looking forward to legislation to enact that provision. We're also pleased with the changes in the tax treatment of stock option gains for R&D employees. However, we feel that the R&D restriction might be too narrow and may not provide benefits for a number of small and medium-sized manufacturers. We'd like the government to review their criteria here to see if we can't expand this benefit to companies that might not otherwise be eligible under the current program.

The one other policy we've made note of in our submission relates to a deduction disallowance that Ontario imposes on certain inter-company management expenses and lease payments. Ontario has modified this rule in recent years, and we feel it's really outlived its usefulness and should be eliminated. We're also encouraging Ontario to continue to work with the federal government to eliminate the withholding tax on dividends, particularly under the US-Canada tax treaty, because we feel that will substantially encourage foreign investment in Ontario.

Our last bullet point deals with provincial sales tax on software. A number of our members continue to feel that the application of the 8% sales tax on purchases of software is a disincentive to the acquisition of new technology. They recommend that Ontario reintroduce the exemption that was previously available on purchases of software.

That's it. We're open now to questions.

The Chair: Thank you very much. We have approximately three minutes per caucus, and I'll start with Mr Christopherson.

Mr Christopherson: Thank you for your presentation. I don't know how much of Hugh Mackenzie's presentation you heard, but he was laying out some projections based on different scenarios, from implementing the tax cuts but with a so-called soft landing, to increasing the cuts and accelerating payment to debt, and even getting into a recession scenario and a few in between. But other than one scenario, it looks like there's a really good chance, if the government continues the way they are and implements the tax cuts, that even with a soft landing they're going to be in a deficit position in terms of the budget.

Do you think they should cut spending, if necessary, to balance the budget, which would be necessary if they wanted to go ahead and follow your recommendation of continuing with the tax cuts they have planned, let alone any new ones you might have suggested? And if you agree they should cut spending to do that, then how do we deal with the corresponding drag Hugh mentioned? I believe he said the ratio was 5:1 when you're talking drag on the economy. Is all that worth it at the end of the day, or do you not agree with his assumptions?

Mr Howcroft: Unfortunately, I only caught the last couple of minutes of his presentation, so I really can't comment on what he had to say. Our view is that we want to ensure the government maintains a balanced budget and starts paying down the debt. We feel the recommendations we have made in support of the direction that has been started will ensure that happens.

We are concerned about the economy. There is definitely a softening. We're still optimistic that, overall, the economy will pick up in the latter half of this year. We will have some growth but not what had been forecast earlier. If we could project exactly what was going to happen with the economy, we'd all be a lot richer and a lot better off. I take some consolation in the fact that economists have predicted six of the last two recessions, so we'll just have to wait and see exactly what happens. I think there is a definite softening, but we feel the government should stay the course, stay on track and implement the recommendations we have outlined. We feel that will put it in a healthy position for the future.

Mr Christopherson: But projections based on current numbers suggest that if they follow through with the tax cuts, we're going to end up in a deficit position on the budget. And if they want to keep it balanced and keep the tax cuts in place, let alone accelerating any debt repayment you're recommending they do-don't even deal with that; just the cuts that are recommended-that is going to put us in a deficit position, and the only way they can offset that is to cut spending further, which, as Mr Mackenzie pointed out, is going to have us chasing the economy downwards.

Mr Howcroft: Again, we definitely don't support going into a deficit position. If that was the case, we'd have to look at spending and obligations-

Mr Christopherson: But you wouldn't look at tax cuts to stay at a balanced budget? You want the tax cuts even if it means we get into a deficit, even if it means we have to cut spending further? That's what you prefer?

Mr Howcroft: Our position is that the tax cuts will help the economy. They'll help us to attract investment, keep the investment we have here, keep the confidence of the business-employer community so that hopefully we won't be in a position where we're in a deficit.

The Chair: Thank you very much. We've run out of time.

Mr Christopherson: The difficulty is that reality doesn't bear the argument out.

The Chair: I have to go to Mr Arnott.

1120

Mr Ted Arnott (Waterloo-Wellington): Thank you for your presentation. It was thorough and comprehensive, and we certainly appreciate the advice you brought forward on behalf of your members.

I want to thank you very much for your support of the need for accelerated effort toward debt retirement and debt reduction. For a long time I've felt the government needs to place a higher emphasis on that. I was very pleased that the government expanded its commitment to retire debt in this term of office from $2 billion to $5 billion, and you noted that. I think what we need now is to commit ourselves to a long-term-say, 25-year-debt retirement schedule or plan, if you want to call it that, to keep our feet to the fire and remind people there is a huge debt we need to pay down, especially in good years.

You talked about the capital tax, and you suggested that ought to be repealed. In my riding, we have people who complain to me about the capital tax too, especially farm implement dealers and car dealers. Of course, as you pointed out, it's a tax that's not sensitive to profit. In other words, companies that are actually losing money can be assessed considerable capital tax bills.

Do you have any idea what it would cost the provincial treasury to repeal the capital tax in its entirety? I don't know what the figure is. I don't know if you've had a chance to research it. There is likely going to be a cost, but of course our government believes that if you reduce taxes you can stimulate the economy and, to some degree, recover that revenue through greater economic activity. Do you have any idea of what it would cost the treasury in the short run?

Ms McGovern: I'm not exactly sure, but I believe it's $1 billion.

Mr Arnott: So it's a substantial cut.

The other question I want to ask you is on the whole issue of the favourable tax treatment for share options-you talked about that. Our last budget allowed that for certain R&D types of companies, and you've suggested we expand it to everybody. That would seem to me a reasonable thing to suggest. I'm just trying to determine in my mind which companies are currently eligible and which are currently excluded.

Mr Pye: The way the current rules are, I think it's companies that are performing a substantial amount of R&D in terms of their overall percentages. You find very large companies that may have a substantial amount of R&D but it's not as significant a proportion of their activity, and they are not allowed to qualify. As well, you get small- and medium-sized companies that may not have the resource dedicated to that particular area. Obviously, large companies can dedicate specific divisions and people just to research and development, but it gets blended with the rest of the operation. So even though they're still doing it, because of the way they're structured they don't qualify under the current program. If we can encourage them through this program as well, I think the province in total would obviously have more R&D performed here.

The Chair: Mr Kwinter.

Mr Kwinter: Over the last several years-I guess over the last four years certainly-we've enjoyed one of the greatest increases in our economy. I've been on this committee for 10 years, and the projections on the GDP last year were almost half of what they actually were, which allowed the government to have unprecedented revenues that even they didn't expect, and allowed them to do all sorts of things. It allowed them to come up with a surplus, it allowed them to make tax cuts, it allowed them to put some money into debt reduction.

We now have a very definite softening. I want to read something that should impact on your industry because, as you say, 90% of the exports we have come out of the manufacturing sector. "Economist Marc Lévesque of the Toronto-Dominion Bank said the figures `confirm that we are getting side-swiped by the United States,' where the manufacturing sector is already in recession, even if the broader economy is not."

It indicates to me-and from everyone we've talked to-that regardless of the level of softening, we are definitely in a softened condition. Some are predicting a full-fledged recession; others are saying it's going to be a soft landing. But no matter what happens, no one is projecting the economy is going to grow greater than it was last year. I notice that in the Ontario Economic Accounts, inventories for the manufacturing sector are the highest they've been since 1995. So all the indicators really show that we're in for a rougher ride than we've been experiencing in the last four or five years.

With all that, every one of the recommendations in your presentation is aimed at reducing revenues for the government-helping the manufacturing sector, without question, but everything goes to reduce this tax, eliminate this tax, change the capital cost allowance, do all of these things. So all of this is going to reflect on revenues, plus the fact that virtually on a daily basis the projections of what the GDP is going to be keep dropping. So that's going to impact on the revenues, plus there's a $5-billion commitment to debt reduction over the term of this mandate. There is legislation now that provides for balanced budgets.

Somewhere along the line you have to deal with this, and you have to deal with it in such a way that you respect the legislation, you have to deal with the commitments that the government has made to debt reduction, plus all of these other pressures. You mentioned skills development. We had a presentation by the Association of Colleges of Applied Arts and Technology saying that unless they get some more money, they're just not going to be able to deliver these skills.

All of these pressures are there, and I haven't seen anything in your presentation to say, "Here's what we think you should do." Everything is really tax-oriented, basically, the whole presentation. Other than skills development, it's all tax-reduction-oriented because it'll make us more competitive. That's a long-winded kind of preamble, but could you respond to that?

Mr Howcroft: I'll start. I think I recognize and see what you're saying and I agree that we are in a softening of the economy, we are seeing a major slowdown in the United States, and I think that's why we have put forward our recommendations that we have to ensure that we're competitive. Things are slowing down there. We have to ensure that we can keep the business we have here and continue to attract business, because they're going through an even tougher time in the manufacturing sector in the United States. If we were to start raising taxes or stopping the course, we'd become a less attractive jurisdiction, and in our view things would start to deteriorate. We would be in even worse shape if we don't stay the course and continue to reduce the taxes and make it a more streamlined system and deal with the other issues that we have.

I'm glad you did note that we are very concerned about the skills shortage issue, and it's not just an issue of money on the skills shortage issue; part of our recommendation is that we have to deal with that in a more coordinated effort. If you look at how skills are dealt with in Canada, you have the federal government with its role; you have the provincial government with its role. Even within Ontario you have the Ministry of Training, the Ministry of Education, the Ministry of Economic Development with its skills initiative; you've got the Ministry of Energy, Science and Technology dealing with its own skills initiatives. What we're advocating on that is to have a more coordinated approach to better deal with the money we are allocating to skills development.

We're trying to be productive and responsible in the recommendations we're making, and we do this to ensure that we have as healthy an economy in Ontario as we can, recognizing what's happening in the United States. We are tied, even more so now than we were 10 years ago, to the American marketplace. That's a reality we have to deal with. We feel that the recommendations we make take that into account and will help ensure that Ontario weathers this economic softening as best it can.

Perhaps Glen or Joanne have other comments to make on that.

Mr Pye: Certainly globally we're going through a reduction in tax rates, and that increases the competitiveness aspect for Ontario. The US is again looking at tax reductions, and I know every jurisdiction has to look at its own books of account, and times change. If the economic conditions warrant it, perhaps we have to revisit some of these tax reductions. But that's the competitive state globally, and we feel that to encourage investment-and certainly investment creates taxes one way or the other, whether it's through employment or building. Almost all of our recommendations, you'll see are, to encourage investment in Ontario. So we think there will be some additional taxes provided through these cuts. Our recommendations are all based on that and keeping the global competitiveness that's required to get the sustaining investment in Ontario.

The Chair: With that, I would like to thank you on behalf of the committee for your presentation this morning.

1130

ASSOCIATION OF MUNICIPALITIES OF ONTARIO

The Chair: Our next presentation is from the Association of Municipalities of Ontario. I would ask the presenter to please come forward and state her name for the record. On behalf of the committee, welcome.

Ms Ann Mulvale: Thank you, Mr Chair and members of committee. My name is Ann Mulvale. I am the president of the Association of Municipalities of Ontario. I'm very grateful, on behalf of the members I represent, for the opportunity to provide input into the pre-budget consultations.

I'm sure all of you know of AMO, but for the record, the Association of Municipalities of Ontario is a non-profit organization representing the voice of the municipal order of government in Ontario. AMO represents almost all of Ontario's 447 municipalities, and our membership represents over 97% of the province's population. AMO's mandate is to support and enhance strong and effective municipal government in Ontario. It promotes the contribution of the municipal order of government as a vital and essential component of Ontario's political system.

You have a copy of our written submission, but in the interests of time I will not follow it fully. I do want to set the context for our recommendations.

Having balanced budgets at both the provincial and federal government is positive. The impressive competitive performance of Ontario's economy has no doubt benefited from the disciplined fiscal management of the provincial government. However, that fiscal plan clearly involved municipal governments. We believe it is time for that contribution to be recognized.

Municipalities have managed over $1.7 billion in transfer payment cuts since 1993 in response to the social contract, the expenditure control plan, the 1995-96 balanced budget plan and the 1998 local services realignment. We handled this significant loss of revenue at a time when property assessment was not growing and, as you know, property taxes are the major source of our revenue stream. We did this while generally holding the line on property taxes. However, it has not been without casualty. Our municipal infrastructure deficit has grown dramatically.

We understood the fiscal imperatives that the government faced in 1995. As partners in government, AMO knew that municipalities would have to be part of the solution, but we needed the means to manage the loss of the transfer payments. As an accountable, responsible and experienced order of government, we asked and continue to ask for the flexibility to manage the business of municipal governments without excessive control and prescriptive legislation. Control and prescriptiveness do not engender creativity and responsiveness, characteristics needed to govern in the modern age.

AMO and its members are dedicated to making Ontario competitive by building strong, efficient municipalities. We know that competitiveness is a driving force in the province's economy. However, 2001 is proving to be a year of great challenge for many of our members. The year 2001 is seeing the convergence of the shifts in property assessment and taxation policies with the costs of downloading and the real costs of new mandated programs and standards. It is seeing the convergence of the costs of amalgamation, particularly the pursuit of the highest pay levels for employees. It is the convergence of an economic slowdown.

Our submission will therefore look at three factors that are posing a significant challenge to local-level competitiveness and credibility.

(1) The province's policy to make property taxpayers absorb the cost of open-ended income redistribution programs;

(2) The maturing costs of the local services realignment and the continuous trickling of downloading; and

(3) The combined effect of these two pressures is significantly impacting the efforts by municipalities to timely, proactive rehabilitation to our vital capital infrastructure.

Let me expand on these three impacts, beginning with income redistribution programs. To be clear, some of the transfer of services under the local services realignment made sense, and after a number of false starts by previous governments, this government has disentangled some aspects of service delivery. However, a liability remains with the transfer of a greater share of the cost of income redistribution programs on to the property tax base, such as welfare, social housing, child care, public health and ambulance services.

This decision of the province signalled a fundamental shift in taxation policy, and one that is contrary to the accepted taxation principle that income distribution costs should be borne through pre-tax income tax revenues rather than after-tax property tax revenues.

As Professor Harry Kitchen explained in a recent report on taxation released by the C.D. Howe Institute, "A municipality's taxes should fund the range of local services enjoyed by its own residents, but not redistribution of income or benefits that spill over on to neighbouring communities, commuters or visitors."

Until now, municipalities have been able to absorb welfare and other social services costs, as good economic times and the provincial commitment to get Ontarians back to work resulted in a decrease in overall welfare caseloads. The program has been effective during the economic boom, but we have known all along that this situation could change as economic conditions invariably change.

Now that the economy is clearly slowing down, our worst fears may be realized. We hope that welfare costs will not increase by $1 billion as they did in the last economic downturn. While the government made a commitment that the local service realignment and community reinvestment funds would be adjusted if costs went up, this financial arrangement is at best tenable; it certainly is not predictable.

Unlike the early 1990s, this time around we also have responsibility for the management of the social housing stock. There are many debates about the state of that stock and whether the $58 million earmarked by the province for future social housing capital funding will be enough to manage the exposure. It is clear that this year's rise in heating bills for these units in itself will put a significant new pressure on operating budgets, illustrating the exposure municipalities face.

Then there is the pressure to find ways to build more affordable and subsidized housing to help deal with the waiting lists that already total more than 100,000 people. Municipalities cannot afford to be involved in rent subsidies. Assuming a subsidy level of $10,000 per unit, which is probably low, it would require $1 billion to meet that need. This represents an additional 25% of the $4 billion capital investment municipalities made in 1999. The municipal tax base is simply not capable of the flexibility to absorb such surges in expenditures.

The second impact is the cost of downloading. There is much discussion on whether the 1998 transfer of services was revenue neutral or not. While we can debate this, and we can put a whole lot of auditors on the trail, there is one simple fact that cannot be ignored: some municipal local service realignment costs are higher than what the province had factored. For example, municipalities must pay provincial sales tax on equipment and services that the province did not. These costs have not been included nor have they been waived, but perhaps this is something that should be considered.

Different labour and insurance frameworks exist for municipalities, including WSIB, liability and arbitration, which have resulted in additional municipal government costs.

The transfer of the administration of provincial offences has meant that many municipalities have had to build new court facilities, which also is not reflected in the LSR, and the POA revenues have been overstated.

On their own, these things are not difficult to fix. Fixes would be helpful. What may be more challenging is getting a handle on the continuous trickling of downloading through new programs and imposed service standards. These continue to impact our costs. For example, municipalities will have to bear the added cost of the new policing adequacy standards, which establish very costly training and staffing requirements. The new drinking water regulations have a significant effect on operating costs. We have yet to be told that there will not be new costs passed on as a result of the government's Blueprint initiatives relating to Ontario Works. We know that standards for the replacement and maintenance of flood control structures are on the horizon.

While we can debate the merits of new programs or standards from a public policy perspective, there is one simple fact: the cost of implementing them has not been factored into either the LSR or the community reinvestment fund formula nor accompanied by new revenue streams. There seems to be a presumption of fiscal capacity.

The provincially approved process for new initiatives or standards does not appear to evaluate or appreciate the cumulative impact or capacity of a municipality to implement any new program or standard. It does not give any flexibility for how the initiative relates to other priorities of the communities. When you consider that up to 50% of a municipal operating budget is directly mandated services and standards, it is understandable that municipalities feel defenseless.

A final area that has not been adequately addressed by either the federal or provincial governments is the need for continuous financing to support the expansion and regular maintenance and repair of municipal infrastructure. Both levels of government have, for all intents and purposes, withdrawn from the capital infrastructure business. The cost of rehabilitation and replacement of Ontario's roads, bridges, water and sewage infrastructure over five years has been estimated at $21 billion.

1140

While Ontario's portion of the federal infrastructure funding totaling $680 million is welcomed, we do not feel that Ontario is getting its fair share. The Ontario economy is responsible for infusing 43% into the federal revenue stream but only gets back 30% of all federal expenditures. This is clearly unbalanced. It is not an overstatement to say that the economic future of Canada is largely dependent on the quality of infrastructure in Ontario. The federal government's contribution to infrastructure costs must reflect that reality, and we will continue to press them on this. We hope we have your collective support in that regard.

At the same time, it is important that the provincial government get back into the infrastructure business. The nature of direct provincial financial support for infrastructure in Ontario has fundamentally changed since the creation of SuperBuild. There is no sustained, dependable, dedicated financing system available. SuperBuild initiatives are designed to be competitive and establish selective strategic investments. While this approach has merit and will facilitate economic growth, it is not going to go as far as needed. The SuperBuild approach cannot possibly address the long-term, sustainable financing infrastructure needs of Ontario municipalities and the people of our province. The submission sets out a number of examples of the challenges, from transit to roads to water and sewer. I know others have appeared before you offering similar examples.

The Premier recently identified three principles for smart growth in Ontario: a strong and efficient economy; strong communities and neighbourhoods; and a clean and healthy environment. If we are to achieve these principles, we need a sustained and predictable approach to building and fixing Ontario's infrastructure.

What does the municipal sector need in this budget? In the face of continued downloading, mounting municipal costs and signs of an economic slowdown, municipal financing is at its most vulnerable in decades. The number of municipalities facing the need for tax increases and debt financing has grown, and the trend will continue if we do not deal with these threats to the financial health of our municipalities.

Improved provincial competitiveness at the expense of municipal competitiveness is not a desirable outcome for commercial, industrial and residential taxpayers of Ontario. It leaves Ontario communities, and the province as a whole, at a competitive disadvantage to other provinces and surrounding jurisdictions.

Clearly, continuous debate over the legitimacy of our respective financial figures relating to downloading through the local service realignment will not lead to a satisfactory resolution of this matter. And if I might make a personal observation, I believe it is a mug's game and does not serve the people of Ontario.

The time has come for the province to honour the sentiments expressed in 1998 that income redistribution programs should more appropriately be funded through provincial revenues. We were told that when the province's fiscal house was in order, then it would be the time to address the risk associated with income redistribution programs on the property tax base.

We think that time is now. While the growth projections are lower, provincial sources of revenues are still growing much faster than municipal property tax bases, supplemented by user fees. In 1999, our revenues only increased by 2.3%, while provincially the deficit of $2.4 billion became a surplus of almost $15 billion in 1999. The surplus this year is pegged even higher.

Ontario taxpayers expect a plan. We need a plan. Purposely, we have not brought a detailed proposal, but rather an offer. Let us work together to build a plan that continues the financial uploading of some of the social and community health programs, including education and the farm tax rebate. We know that any such plan must work within the provincial fiscal reality, that incremental change will be needed. Municipal governments can live with evolution, but we need a plan to see that progress is possible.

This will offer us the chance to take a fresh look at the actual outcomes of the LS realignment transfer. Some of it was good and we should not lose sight of that. We are confident that we can begin to build on the work to date and arrive at a more sustainable and stable provincial-municipal financial relationship. While such a plan may take some time, it will certainly take partnership. This must be a priority for both orders of government.

In the meantime, the risk of increases in welfare costs and other social services is immediate. What can be done in the interim? We ask that the province commit to an insurance plan-a capping plan of sorts-that recognizes the employment support approach of Ontario Works. It must also recognize the related pressures that any economic slowdown places on social housing and child care.

A clear signal to municipalities that the province will work with us in designing such an insurance plan would go a long way to lessening the immediate municipal anxieties. Together, we are capable of designing an effective safety net for property taxpayers.

A second component of a more sustainable financial relationship is to realign sources of tax revenue with the level of government that is shouldering the burden of the cost of transferred responsibilities. Programs such as SuperBuild and federal-provincial infrastructure agreements come and go. They have particular priorities which are valid and important but lack the strength and dedication to continue to build a strong and vibrant Ontario.

If we are to meet the urgent challenges of quality infrastructure, now is the time for the province to dedicate a portion of the provincial tax revenue to ongoing capital infrastructure financing. We ask that you reconsider redirecting a portion of the almost $3 billion collected through gas and fuel taxes to municipal infrastructure. It is an approach that is used in other provinces. It is an approach that can work in Ontario. Dedicated resources for our core infrastructure like roads, transit and bridges, unlike special dedicated programs, will not distort municipal funding priorities. It will not impinge on public-private sector partnerships that have a stronger interest in larger, interregional projects.

The municipal sector, on behalf of the property taxpayers of Ontario, needs a commitment from the province that there will be no additional downloading of costs to municipalities of either a direct or an indirect nature. Saving targets, if imposed on line ministries, must not result in new mandatory programs or standards being prescribed for municipalities.

Should any new provincial initiatives be imperative for clear public health and safety reasons, then they should be vetted through a provincial-municipal committee. This committee should have an overview of all downloading costs from across the government, and will be able to best judge the cumulative impact of additional downloading responsibilities.

In conclusion, I am confident that with the proper forum we can work together to reduce financial instability or spiking exposure to municipal governments and residential property taxpayers. I am confident that working toward a capital investment process will ensure Ontario and its municipalities remain competitive. By looking ahead, we can improve the provincial-municipal relationship. We share the same constituents. They expect us to work together to solve today's problems with an eye to the future. AMO and its membership are ready to move forward on a renewed partnership. We're hopeful that the provincial government has a similar focus.

Thank you for this opportunity to share with you AMO's perspective on what the municipal sector, on behalf of our mutual constituents, needs in the next budget.

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

Mrs Tina R. Molinari (Thornhill): Thank you very much for your presentation. Just before I ask my question, to clarify, on your page 6, where you stated, "In 1999 our revenues only increased by 2.3%, while provincially the deficit of $2.4 billion became a surplus of almost"-you have here "$15 billion in 1999." That's inaccurate. According to our Ontario budget 2000, in 1999 it should be $700 million, if I'm reading this correctly.

1150

Ms Mulvale: I take the point, if your numbers indicate differently, but I think the illustration is clear that the deficit became a surplus and that there are added revenues that you have that we clearly do not have. So, whereas we can jog back and forth on the precise numbers, the illustration is that you've gone from a deficit to a surplus. There's still momentum.

Mrs Molinari: I understand that. I just thought it was possibly a typo in your presentation.

Ms Mulvale: Pat Vanini will take note. If I have misspoken, we'll go back. We certainly do not want to use numbers in our presentations, which we make continually across the province, that are inaccurate.

Mrs Molinari: My question-

The Chair: I'll give you one minute.

Mrs Molinari: Your presentation, representing all of the municipalities in Ontario, is truly appreciated. We've heard from various municipalities on an individual basis about some of the challenges they're facing, and some have been able to make decisions that have not needed to increase taxes. They've been more efficient and more able to manage their finances.

My question to you would be: representing all of the municipalities and having a clear vision of what's happening in all of Ontario, out of all the recommendations you've made here, which one would you say would be the most crucial at this point in time that you would like to see implemented by this government?

Ms Mulvale: I believe, first, the interim would be a capping of the exposure on the welfare issue. That's clearly a major concern because of the economy. Second, a means to move to the uploading piece. Premier Harris, when newly elected, spoke to the first AMO conference making it clear that he agreed with us that after the deficit was dealt with and your operating budgets were put into play, there would be an action to relieve the property tax base, which is paid for in after-income-tax dollars, of those exposures. We believe the vision that was in your government at the beginning is the right vision and we need a way to start proceeding on that. It takes that exposure away and gives the capacity to the municipalities to get down to their core businesses. They can still deliver those services, but they should not be funding those services.

I hear what you said about municipalities that have been able to hold the line without increases. We're certainly seeing that the capacity to do that is virtually exhausted now. We've had a decade of social expenditure control plans, social contracts. We've worked with the three provincial governments during my 12-year tenure. There is an end to what can be achieved. Remember that some municipalities have growth and others don't. Some municipalities have different cycles of collective agreements. So it is not totally constructive to compare municipalities year to year. You might see the one that didn't have an increase in 1999 have a bigger increase. You will note that Toronto managed not to have increases, and the chickens have come home to roost. They may have delayed capital expenditure, they may have been lacking in prudence in transferring money from operating to capital, and then you see a huge spike. Most of us try to have a straight line-

The Chair: Thank you very much. I have to go to Mr Kwinter.

Mr Kwinter: Thank you very much for your presentation. It would seem to me that with the downloading that has already taken place plus potential mandated downloading, unless there is sufficient funding to accompany that downloading, what you really have is one body telling the other body, "This is what you must spend your money on, and you're going to have to find the money somewhere." Is that what you're implying in your presentation?

Ms Mulvale: We've made it clear that our observation is that 50% of the consumption of the budget municipally is by mandated services. So if those mandated services grow beyond that 50%, what we saw in previous recessions was that it takes away the discretion. Many local municipalities delayed dealing with their local road needs because they had discretion. It was not a discretion they welcomed, but they had an obligation to meet that mandate.

Just as the federal government downloaded some of their responsibilities to balance their deficit on the provincial government, and the provincial government is being successful in repatriating some of those health care dollars, we believe now that since the provincial government has no operating deficit, they should work with us, take back some of those funding responsibilities and give back the proper creativity and role to municipal governments to meet the local needs of the municipal property taxpayer.

Mr Kwinter: And of course you have the unfortunate position of being at the bottom end of the tax chain, so the only people you can download on to are the taxpayers.

Ms Mulvale: That's true, and remember again-I've said it twice before, but it bears repeating-municipal property taxes are paid with after-tax dollars. The C.D. Howe Institute is beginning to understand, the Ontario chambers of commerce and the federation of small business all understand that putting exposure on to the property tax base is inappropriate and counterproductive to the sustainability of community and the economy in terms of the municipal contribution.

Mr Christopherson: An excellent presentation, Your Worship. It's good to see you again; a neighbour just down the road from us. I was really glad you put the quote in there from C.D. Howe, because those of us who have served at the local level certainly don't need a PhD in economics to understand that leaving the property tax base vulnerable to increases that are especially out of whack with what's happening at the provincial government is just a recipe for disaster.

It's been noted by presenters, and you've shored it up, that a lot of municipal governments, because they had to cope with the pressures, have delayed a lot of spending. As you put it, those chickens are coming home to roost.

It's interesting that the Canadian Manufacturers and Exporters came in and they outlined property tax. Virtually every group that comes in on the macro scene talks about keeping property taxes under control, yet given what we have right now, if the government goes through with the tax cuts they've planned, without even accelerating debt repayment-and then there's pressure and we hear some of the members of the government side saying this is their new hobby horse. It wasn't before, interestingly enough, when they had the money; it was tax cuts that were the priority. Then they increased the debt to give the tax cuts. Now the debt suddenly is the biggest priority of all. Notwithstanding that, though, they're likely going to be in a deficit position. The only way they can balance the budget and put in their tax cuts is to cut spending.

Again, I've sat at the cabinet table; I know, as soon as you look at the dollars, the MUSH sector is your biggest sector in terms of transfer payments. You could be in for further cuts.

I just want to point out, for those of you who think all of this debate is happening in a vacuum, that last night in Hamilton there was a 15% increase in water and sewer rates, not because they wanted to raise taxes, but because you've decided that you're going to continue to go around bragging-the government-that you've cut taxes and, "Isn't it wonderful," and business comes in and sings the praises. But where the rubber hits the road, things still have to be paid for.

I want to ask you about the issue of the tax cuts. If it means the difference between going into deficit or not, should they put those things on hold? Is it a bigger priority to deal with the pending pressures that are on all municipalities?

Ms Mulvale: I'm astute enough to know that there are all sorts of figures on whether the downloading was revenue-neutral and there are all sorts of figures on whether a tax cut will or will not put the government into deficit. I do not have those numbers.

Clearly, we're here to say that the municipal level of government is a fundamental part of the well-being of this province. We're here to say this government has succeeded in getting a restoration of health care dollars from the feds. We think the time to look at a new funding relationship between the province and municipalities is here. I do not have the background to comment on whether the tax cuts, if they are implemented, will drive the province into deficit or not. So I understand the bait, but I am not taking it.

Mr Christopherson: Oh, no, I didn't mean it that way, Your Worship. I regret that you took it that way.

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

Mr O'Toole: Mr Chair, if I may, I would like to ask, with the permission of the committee, a question to be filed or responded to, though the Chair, by AMO in response to the GTA position on forming a transportation authority. What is AMO's position on that? If you want to file that-

The Chair: I think you should probably file it with the committee, because we're out of time.

Mr O'Toole: It's a very important issue.

1200

ELEMENTARY TEACHERS' FEDERATION OF ONTARIO

The Chair: Our next presentation is from the Elementary Teachers' Federation of Ontario. I would ask the presenters to come forward and state their name or names for the record. On behalf of the committee, welcome. You have 30 minutes for your presentation this morning.

Ms Phyllis Benedict: Good morning and thank you, Chair. My name is Phyllis Benedict. I'm president of the Elementary Teachers' Federation of Ontario. With me this morning I have my general secretary, Gene Lewis, and executive staff officer, Barbara Richter.

The Elementary Teachers' Federation of Ontario represents 65,000 teachers and education workers in elementary public schools across our province. Our members work in 37,000 classrooms in over 2,500 schools and they teach more than 900,000 children. ETFO is proud to represent the interests of public elementary students and teachers and to promote and protect the public education system.

Last year we came before this committee and we addressed the funding needs of elementary students and teachers. We were pleased to see that the resulting budget recognized some of our issues with funding enhancements to primary class size, special education and literacy. Buoyed by the government's recognition of this need for enhanced funding to elementary education, and particularly to the early learner, we come before this committee again this year with an investment strategy designed to ensure the success of our mutual goals.

ETFO and this government have had differences of opinion. Nevertheless, we do have a major goal in common: the current and future success of the students in our care in Ontario's education system. How we measure the current success, whether it be through standardized testing or through subjective and individual criteria, or a combination of both, will be the subject of continued debate. How we measure future success provides more ground for commonality. We both want today's students to become good citizens, to participate in the democratic society, to contribute to the economic well-being of the province and to lead lives they consider healthy, rewarding and fulfilling.

There are many factors that contribute to the way their lives unfold. The foundation we provide students in their elementary education, particularly in their early years, will influence what happens to them in later life. Through smart investment of our financial, material and human resources in these critical years, we can do our part to help our students succeed. Added benefits will be long-term savings to our province that boost our economy.

Whether our students choose to become doctors, lawyers, lathe operators, truck drivers, teachers or even the Treasurer of Ontario, they require basic tools, skills and attitudes for success. Writing a business plan for a new company or a doctoral thesis for an advanced academic degree or even a letter to a friend, or reading an instruction manual, all require basic literacy. The ability to read and write, no matter the context or the career path, is essential to a successful future in today's society. Numeracy skills are critical to building success in today's society as well, and these go beyond memorizing multiplication tables or getting through long division. It means having the ability to figure out how to work with figures, how to solve problems.

Continued enthusiasm about learning is a third key to success. Whether it's through formal education with degrees and diplomas, retraining or upgrading to improve job skills or learning how to glaze pottery, a love of learning and a passion and inquisitiveness for exploring the new and the unknown are essential to lifelong learning, to good health and to success. Where do our students get these tools: literacy, numeracy and the passion for education? Who pulls it all together? Family, friends, the media and their formal education. Educators impart the love of learning that can grow and blossom through a lifetime.

How do we make it happen? There are ways we can ensure that our students gain effective literacy and numeracy skills and acquire that passion for learning and develop as caring, responsible citizens. We make it happen by serious investment in our early learners, in smaller class sizes and in a system that is rich in human and material resources. Last year the government began an investment program and this year we call again on the government to turn that investment into a long-term commitment.

The research on class size is clear: investment in small class sizes, particularly in the early years, results in improved learning for students, improved test scores in literacy and numeracy and cumulative benefits for both the student and society. The research is there before you.

The Tennessee Student-Teacher Achievement Ratio, the STAR project, showed that students in small classes in kindergarten through grade 3 performed better in reading and mathematics tests than their peers in larger classes. When they returned to regular classes in grade 4, they were six to nine months ahead of students from larger classes, and by grade 8 they were one year ahead.

The Student Achievement Guarantee in Education, the SAGE program, conducted in Wisconsin from 1996 to 1998, found that kindergarten and grade 1 students in classrooms with a student-teacher ratio of 15 to one achieved greater increases in test scores in language arts, reading and mathematics than their counterparts in larger classes. The advantages were maintained in their second year.

California has had an initiative to reduce kindergarten to grade 3 classes to a maximum of 20. However, off to a rocky start, the financial investment is starting to pay off. Those students who are now in grade 3 are showing achievement gains in mathematics and reading scores.

Research also shows that students who start their education in small classes are less likely to drop out, more likely to graduate on time, take more challenging courses in high school and more likely to attend college than their peers in larger classes. They participate more in school and have fewer discipline problems. They have more opportunities to work on problem-solving and take on responsibilities.

Teachers in smaller classes can cover the curriculum faster and in greater depth and provide earlier identification and intervention for learning problems.

Our minority students and inner-city students gain from smaller class sizes.

Is this an expensive initiative? Yes, but smaller class sizes, though they cost more money, have long-term benefits to our students. That is no longer debatable.

Last year the government invested $100 million to reduce primary class sizes to an average of 24. This was a first step in the right direction. We believe that all elementary class sizes, from junior kindergarten to grade 8, should be reduced, but, as a minimum, the next step must be a long-term commitment to reduce primary class sizes and an action plan to implement that commitment. We want the initiative to be successful, and that requires long-range planning. We need the spaces, the teachers and the resources to implement smaller class size. If this government would invest new monies to achieve reductions in primary class sizes in each year of its mandate, Ontario would see the results very soon.

We need specialist teachers. That is another successful investment strategy in funding. Our members report that there has been a reduction in specialist teachers since 1998-99. We have fewer teacher-librarians, special education teachers, English-as-a-second-language teachers, music teachers and physical education teachers. These are not frill teachers; these are teachers whose specialties contribute significantly to literacy and numeracy skills, as well as giving our students a love of learning.

Studies have shown that student literacy improved in schools with well-equipped and welcoming libraries staffed by teacher-librarians working in partnership with classroom teacher colleagues and students.

A Colorado study found a direct correlation between higher test scores and the quality of the school library, regardless of the socio-economic status of the students in the community. The size of the library staff and the variety and size of the collection were predictors of achievement as well. It also found that when children have access to interesting reading material, they do read, even without the promise of rewards, burger coupons or movie passes. The quality of the school library was among the predictors of higher reading achievement scores in the National Assessment of Educational Progress for fourth-grade reading in 41 states in the United States. There is a disparity in our province about the access that our children have to books because our school libraries have been so drastically reduced.

1210

Based on a school-based survey by ETFO last year, we saw that there was a 22% cut in teacher-librarians. The People for Education Tracking Report 2000 saw that only 68% of our public elementary schools reported having a teacher-librarian and, of that, 18% were full-time. These statistics must change if we want to make a difference for the children of Ontario.

With special education programs, teachers make the difference between lifelong success and lifelong struggle. We do appreciate the government's flexibility in seeking ways to improve special education funding. The enhancement to primary student funding was a good first step for a longer-term investment. Providing additional human resources for early identification, intervention and program development will be effective for student achievement and cost-effective for investment planning. Although these programs will pay for themselves in measurable savings in later, more costly remediation efforts, expensive tutoring and even social programs, the security they can bring to a child's future is priceless.

Investment in more teachers and programs for our ESL, English as a second language, will reap its rewards for our students and, more important, for our province. Ontario welcomes a diverse population but our welcome must be supported by commitments to ensure the success of our young people. Although the government-enhanced funding in these programs last year, they did not change the method by which students qualify.

Teachers and principals know that many of the students who are enrolling in their schools from families where English is not spoken as a first language are at a disadvantage. If we're sincere about our commitment to literacy, improvements in this area are fundamental to the success of our youngest students.

Programs for children at risk: public education is society's equalizer. Regardless of the socio-economic background of our students, our public education system must give the appropriate supports and extra assistance that students at risk need to succeed. In this budget, we call upon the government to take the next steps: to continue and even enhance its financial commitment to provide specialist teachers and programming in the elementary panel.

Smaller class sizes and a system that is rich in human and material resources are two major investments in our students' future success, and there is another investment: in junior and senior kindergarten programs. The government's own Early Years Study recommended resources for early learners. The Education Improvement Commission recently recommended a further $1-billion investment in full-day junior and senior kindergarten. The government has yet to respond.

ETFO's commitment to the early learner extends beyond the walls of our own classrooms. High-quality, licensed child care is a vital component of our early childhood education. Research points to the importance of greater integration of children's services and to the benefits of school-based child care. Another good investment is restored funding for child care services and spaces in our schools.

We want our education system to be the best it can be. An important component to the system is its teachers. We are calling upon the government to make investments in education that will require more teachers, well trained, with adequate supports and resources. At the same time, a teacher shortage looms. One way to attract and maintain teachers in the profession is through adequate compensation levels, good working conditions and appropriate supports, including professional development opportunities.

In conclusion, this government has stated its commitment to the success of our students, and we at the Elementary Teachers' Federation of Ontario share that commitment. One of the government's strategies to achieve that success is improving the literacy and numeracy skills of our students. We concur, and we add to that skill set the need to instill a passion for learning in our students.

The government has also stated its commitment to the early learner, and we also share that commitment. The government has begun to demonstrate that commitment in some more practical initiatives. Much more, however, is needed to ensure the success of our students.

In our brief we have outlined an investment strategy for this government, a strategy that complements the government's commitments and that ensures literacy and numeracy skills for our students, that enhances the present and future lives of our students, and this will result in long-term societal benefits and savings to the Ontario taxpayer. It's an investment that could reap more benefit for our students and the economy than a simple tax cut. Where could you find a better deal? Investment in our elementary students is the most successful financial strategy in today's market and tomorrow's economy. It's not just the right thing to do, it's the common sense thing to do.

I refer you to the seven recommendations that are found at the end of our presentation.

The Vice-Chair (Mr Doug Galt): We have just barely three minutes for each caucus. We're starting with the official opposition.

Mr Kwinter: Do you have the figure as to what the illiteracy rate is in Ontario at present?

Ms Benedict: No, we don't. Sorry.

Mr Kwinter: I know that at one time when I was in government it was an astounding 24%. I was just curious to know whether that's changed. Do you have any idea as to whether-I mean, even ballpark?

Ms Benedict: We could find it out. We don't have it with us today.

Mr Kwinter: OK. One of the things we have found-as you probably know, we've been on the road and we've been listening to groups. We've heard from elementary teachers, and one of the major concerns that they've expressed to us-and it isn't reflected in your presentation-is the average class size. The government has invested $100 million to reduce primary class sizes to an average of 24. That works out fine on paper, but the practicality is that some schools in some rural school boards have relatively few students and in order to get that average you can have 28, 30, 32 students in another class. Someone gave what I thought was a very dramatic example when they said that if you take 32 five-year-olds and put them in your house for the day, try to teach them, try to keep them under control and try to have a meaningful educational experience with them, you'll know what it's like. Do you have any comment on that?

Ms Benedict: We also do an internal survey with our members to see what they are experiencing in their classrooms, and their comments echo the ones that you have made, where we have seen that there has been a very small reduction in the primary classes. They're not back yet to what they were in 1997 and 1998, at a time when the government accused the teachers' unions of bargaining class sizes upwards. So we're not even back to what they were in 1997-98.

Parents have spoken to me on numerous occasions about walking into their child's classroom and being surprised to find in excess of 24 or 25 children-indeed, many of them are over 30-and saying, "The government said." If we had maximum class sizes, not board averages, then we could see the teachers do the incredible jobs that they try to do under the circumstances now. Again, who benefits? The students of Ontario.

The Vice-Chair: We'll move on to the third party.

Mr Christopherson: Thank you very much for your presentation. It certainly is very consistent with what we've heard in each of the locales. I think you have every reason to provide an umbrella view that reflects what you've said here. It's certainly sustainable by what we've heard in other communities, once we go out there and listen to the teachers on the ground in the various communities.

I have a comment and then a question. The comment is, I would strongly recommend you get the Hansard for the presentation that was made this morning, first off, by Hugh Mackenzie, who talked about the projected outcomes of where we're going to be vis-à-vis a possible deficit position with regard to the budget should the government, under different scenarios, keep their tax cut plan in place and go ahead with it or not do that and then they factor in the economic forecast; whether it's going to be the so-called soft landing or getting closer to the hard recession.

Anyway, what it all points to is that other than one scenario, which is that they don't do the rest of their tax cuts and we get a soft landing, which is not likely-the soft landing is questionable, given what's currently happening. They put all their reliance on the tech side of things-it was fascinating that he made that comment-and then, of course, the bottom fell out of Nortel and we haven't heard too much about that "the tech side's going to save us" scenario. And I doubt very much they're going to back off from their tax cuts, even though it would be the wisest thing to do. That means they're going to be into a deficit position and the only way they can deal with that, whether or not they go after the debt in a renewed fashion, is to cut spending. You're going to be on the front line just like municipalities were prior to you when AMO was in here.

1220

So I would ask you to take a look at that and get ready, as opposed to trying to argue, "There's a billion dollars; where can we best put it?" I think we're back into trying to hold what we've got and we ought to be very fearful of the future in terms of what the numbers are going to tell this government and how they'll react ideologically.

My question is on an entirely different matter, but one that's caused me to do a lot of thinking about it. I haven't changed my position at all, but it's something I think we all have to keep an open mind to and keep thinking about things. I'd like to know the position of ETFO with regard to the vouchers and the charters notion of schools. I understand, macro, you're probably opposed to it, as I was and remain. But it's interesting that the argument we heard yesterday in London very much talked about those of us who are in my mindset, if you will, and these are my words, but sort of, "Give your head a shake. The demographics have changed. You need to look at it differently than you have in the past. If you want to see examples where it works and it doesn't fragment the province or the population, take a look at other provinces," which I'm going to do to see what the experience has been there.

Your thoughts on that? Because with such a diverse population and it becoming even greater and much of the world looking to Canada as to how you deal with so many cultures and religions and values, how you come to grips with that, this is a major issue for us to deal with. If we stay the course, we've got to have good reasons why we should, or those who are arguing "Give your head a shake and rethink it" maybe should prevail in the absence of those kinds of responses. Just your thoughts on that, because it's a really crucial issue.

The Vice-Chair: Thank you, Mr Christopherson. We'll move on to the government side. You used three and a half minutes.

Mr Christopherson: Thanks for cutting me some slack. You should take a lesson from your Chair, Vice-Chair.

The Vice-Chair: I could have cut you off at three minutes, but I gave you the extra time.

Mr Christopherson: The Chair earlier gave the Tories an extra minute and that was fine, because he used a little flexibility. We do fine until you get in the chair.

Mrs Molinari: Do I have the floor, Mr Chair?

The Vice-Chair: Yes, you do.

Mrs Molinari: Thank you very much for your presentation. I certainly appreciate the tone in which you've presented. You've highlighted a number of common goals just in your beginning statement, recognizing the fact that we do have a major goal and it is a common goal, and that is to do what's best for the students in the province of Ontario. Although some of what we've heard in the past-it's nice to know that it's a recognition that that is in fact the common goal. We have a difference of opinion on ways to achieve that, but I appreciate the fact that you recognize that.

I have a question, but first some comments on the presentation that you've made. You talked about smaller class sizes and the benefits of smaller class sizes for the students. For the first time ever, this government has actually set maximum average class sizes for both elementary and secondary. In the past, there wasn't a cap and so, as was stated, it was negotiated as to what those class sizes would be. I was just reading in some of the clippings a newspaper article today about one board that cut 400 jobs for an 8% pay raise. I'm not saying that has a direct correlation to that, but certainly 400 fewer jobs in a school board means the class size would increase much more. At least, that's one possibility. But because there is a set average class size, obviously, it can't go beyond that.

You also talked about special education and some of the challenges and issues around that and also mentioned some of the initiatives this government has taken to move toward the improvement of that. Special education is ever-evolving. It's the special children that we serve, that you serve as teachers. There aren't two that are identical and alike, so the special education funding formula needs to be reviewed consistently and constantly. The minister is always seeking input from those who are in the field as to how better to improve the way we serve our most vulnerable students.

You also talked about specialist teachers and the importance of that. I firmly agree with the benefits of having specialist teachers in the classroom in the schools to assist students in the areas of specialty. My question to you is, how would you feel about specialists within the schools not necessarily being teachers: artists who could come and teach the arts but are not necessarily teachers with a teaching degree, technicians for computer studies who could be in a school and offer that type of service while not necessarily being teachers? Could you give me your views on whether your organization would accept such a different individual as a professional in the school to assist students in those specialist areas?

The Vice-Chair: On behalf of the committee, thank you very much for your presentation. She similarly used three and a half minutes. My apologies, but time has run out; the full half-hour is up. We appreciate your coming before us.

Ms Benedict: Thank you. I would respond in writing to your questions if you'd like to receive the answers.

Mr Kwinter: On a point of order, Mr Chair: Could we have legislative research find out what the literacy rate is in Ontario, the number of illiterates?

TORONTO BOARD OF TRADE

The Vice-Chair: Our next delegation is from the Toronto Board of Trade. Welcome, and thank you very much for coming forward to present to us. You have a total of a half-hour for your presentation, and what's left over after your presentation will be divided equally among the three parties for questions and/or statements.

Ms Kerrie MacPherson: Thank you very much, Mr Chair. My name is Kerrie MacPherson. I'm the chair of the Toronto Board of Trade. With me today are Elyse Allan, president and CEO of the board, and Helen Burstyn, the chair of our finance and economic affairs committee, which did all the hard work preparing our submission to you today.

Thank you for the opportunity to present our priorities for the 2001 Ontario budget. We are pleased to be here today representing Toronto's business community. The Toronto Board of Trade represents all sizes of businesses, with members across all sectors of the economy.

Our presentation today will provide the committee with an overview of what we believe are the most pressing priorities for Ontario for the next fiscal year. We believe the Board of Trade offers this government a strong framework for action in an area that is growing in importance to all levels of government.

In short, Ontario must acknowledge the importance of urban centres to provincial prosperity through strategic reinvestment. This is a platform in which our board of directors strongly believes; it is a platform supported by our members.

The Toronto region, Ontario's largest urban centre, accounted for almost half the province's GDP and employment in 2000. Some 57% of Ontario's net job gain took place in the GTA. Our region is a leading centre for industry clustering, particularly in sectors vital to the new economy such as IT, telecommunications, new media, biotechnology and pharmaceuticals. Quite simply, our cities drive economic growth in Ontario.

The Toronto Board of Trade believes that Toronto, Canada's only city capable of being a world-class competitor and growth driver, is in a state of decline. The Ontario government must take a leadership role in stemming this slide. Our government must take action to make cities and city regions more competitive. Merely holding the line is not enough, as we are slipping behind as our competitors move ahead.

At a time when economic growth is slowing and when some of our leading employers are announcing significant layoffs, the province must take the necessary steps to shore up the economy for our future. The Toronto Board of Trade believes Ontario's best driver for strong economic growth is a competitive Toronto.

1230

Our 2001 Ontario pre-budget submission outlines three key areas for action:

First, cities such as Toronto must be given the governance tools they need to meet the unique challenges of a large urban centre;

Second, investment in infrastructure must be made to make our cities internationally competitive;

Third, and most important, Ontario must continue to provide a competitive fiscal environment in which to live, work and build wealth.

Essentially, our message is twofold: we are urging the province to invest in our cities directly, indirectly and through partnerships, and we are calling for greater flexibility for municipalities to give them better management tools.

I'll now hand over to Elyse Allan, who will provide you with the highlights of some of our recommendations.

Ms Elyse Allan: In the past few months, we have seen a rising level of tension in the working relationship between the city of Toronto and the province that has been counterproductive for Toronto. The service realignment issue raised a bigger question than who pays for what; it goes to the heart of an issue that has dogged provincial-municipal relations for decades. It's the issue of how municipalities, particularly large municipalities, can manage or raise resources effectively when they are tied to the apron strings of the province.

When we look around the world at some of Toronto's major competitors, there is a striking difference. Other international cities have financing tools available to them that provide increased planning capabilities to grow strategically. Given that Ontario's cities are creatures of the province, Toronto does not have access to similar vehicles.

This is exactly what has encouraged the charter city debate. While enacting charter status for Toronto is an extreme action, we do feel that the arguments resting at the base of the debate carry some merit. Toronto is not comparable to other municipalities in Ontario. In fact, it is not comparable to most cities in North America. It is larger in population and GDP than six other provinces, but it can't form business corporations, it can't use secured debt, it can't sell a business unit without having successor rights apply-something the province in fact can do-and it is also limited in its ability to raise revenue, relying almost entirely on property taxes. Raising property taxes cannot be the solution for solving Toronto's revenue challenges. Quite simply, the city needs other tools that the province can provide.

We realize that asking the province for greater municipal flexibility at a time when our city is facing a $305-million budget shortfall might not sound prudent. But the board believes it is just this situation that highlights the need for cities to learn how to deal more effectively with urban challenges. To do so, they need better tools.

To provide a measure of assurance to the province and to taxpayers, the board supports the creation of a municipal auditor general function. This would also provide cities with additional strategic advice, review the soundness of municipal budgets and programs, and provide annual reports. As you are aware, Mayor Lastman announced a task force to review such a concept for Toronto last week, and we believe the province should support the concept as well.

On the second issue, that of infrastructure, infrastructure on all levels continues to be a significant challenge for our urban centres. When businesses are deciding to locate or expand in a city, they consider many things: the quality of the labour force, access to professional services, the range of cultural activities, infrastructure and the quality of the health and education systems.

Last fall, the board surveyed its members on a range of public policy issues, including these location decision factors. We found that our members considered access to roads and public transit the top decision-making criterion. Sixty-seven per cent of respondents described it as very important.

Some of you are MPPs from the Toronto area, and so are quite familiar with the increasing congestion levels on our highways, expressways and downtown roads. For others, let me give you a taste. In 70 minutes by car, you can be in Milton or Oshawa. By 2011, driving for that long won't even get you out of the city itself. Gridlock is estimated to cost $2 billion per year in productivity loss in the GTA. That's also a $2-billion loss for Ontario. With an additional 2.6 million people expected to populate the GTA over the next 30 years, this is only going to get worse unless the provincial government, in partnership with other levels of government and the private sector, invests in roads and public transit.

Toronto needs a clear financial commitment to the TTC and GO. Strategic investment in transit in particular is vital to limiting urban sprawl, congestion and environmental damage. The Toronto Board of Trade urges the government to invest in public transit to the benefit of all Ontarians and to combat urban sprawl.

Even more important is the need for greater planning coordination of transportation in the GTA. The board of trade strongly supports the Greater Toronto Services Board but believes the GTSB requires increased legislative authority and financial support from the province in order to conduct its business effectively and efficiently.

Another infrastructure aspect that is directly correlated to the liveability of cities is access to affordable housing. The board recognizes the measures taken to date by the province. However, the measures have been targeted largely at emergency shelters or hostel allowances, with little action on increasing the stock of affordable housing. Lack of affordable housing in our urban areas is a significant contributor to the rising level of homelessness. It must be a pivotal part of any provincial strategy on homelessness. The increasing number of homeless people is a condemnation, not only of our cities but also of our nation, still the only country in the OECD without a national housing policy. When downtown city sidewalks and doorways become makeshift shelters for individuals and families who have nowhere else to live, we all suffer a loss of dignity, civility and decency, key characteristics of Toronto which have distinguished it from its counterparts in the US.

Vacancy rates are tightening. For many urban centres, the vacancy rates are between 1% and 4%, with cities such as Toronto and Ottawa below 1%. Having a rate greater than 3% is considered healthy. Our cities are falling far short of that mark. Seventy-three per cent of respondents to our membership survey stated that it was important to build more affordable housing in Toronto, with a majority indicating that federal and provincial governments should lead the way.

The board has taken the same message to your federal counterparts, as we strongly believe that all levels of government bear a responsibility for addressing homelessness. This will shore up not only our economic competitiveness but also our social competitiveness.

I'll close with what the board considers the lynchpin recommendations: the need for competitive fiscal policies to ensure our cities and our province operate in the best economic climate possible in the global arena.

Ontario must establish an aggressive debt reduction schedule. As economic uncertainty circles around us, it becomes increasingly important to demonstrate that Ontario is attacking its debt. The faster Ontario can make substantial payments on its debt, the better able it will be to manage economic slides. It will also ensure that the tax reductions and investment actions taken to date are not jeopardized. We recommend that the government implement a strategy to get Ontario's debt-servicing costs as a percentage of revenues down to at least the provincial average within five years.

The move to fast-track previously announced tax reduction actions is something the board continues to vigorously call for. Our members see corporate and personal taxes as two top competitiveness issues. When asked to choose which tax change would benefit respondents' businesses the most, 33% indicated it would be corporate income tax reductions, followed closely by personal income tax reductions at 29%. Our members have told us quite convincingly that taxes matter to their businesses.

I strongly urge this committee to recommend that the government continue to reduce taxes for businesses and individuals. Corporate tax reductions must be implemented and personal taxes must continue to go down. Tax reductions can stimulate business investment and consumer confidence, two vital ingredients necessary to manage economic uncertainties.

The government must immediately legislate the timeline for implementing the corporate tax reductions. Actual reductions are much more of an investment incentive than proposed ones.

Furthermore, Ontario must move to eliminate capital taxes within five years. Capital taxes represent a singularly unique competitive burden that Ontario's international business competitors in cities like New York, London and Frankfurt do not face.

As a first step, and as a strong indicator that Ontario is indeed open for business, the province must move to eliminate the capital tax rate differential between financial and non-financial corporations in Ontario. This is a tax that is particularly harmful to Toronto, given its status as the country's financial services capital.

1240

We must extend our support to the government for actions taken on business property taxes through Bill 140. Having worked with the province to achieve fairer property taxes for the city of Toronto, the resulting framework met many of our expectations. Of particular importance was the extension of the caps on property tax increases for business, and the board urges the government and this committee to continue to support this crucial element to property tax fairness.

The Toronto Board of Trade urges this committee to consider and support the recommendations made in our submission to foster urban competitiveness. Our cities, especially Toronto, are at a difficult juncture. While they are not the top-ranked cities in the world, they are nonetheless strong contenders to be at the top, but only if the right investments are made, if the right economic and tax environment is created and if their citizens are engaged in a fulfilling and stimulating urban environment. I believe the provincial government can make this happen.

The Chair: Thank you very much. We have five minutes per caucus.

Mr Christopherson: Thank you for your presentation. First of all, I want to compliment you and thank you for the support you've given to the need for an affordable housing policy. It has always, for some of us, made sense on every front: on the human front, on the kind of city we want to live in and on the economic front. Your voice wading in with the kinds of words you've used today will be helpful. I want to tell you how much it is appreciated and will help in terms of making that case.

On the other hand, I also want to tell you how gravely disappointed I am that you've raised the issue of successor rights. Again, some of us said at the time the government removed successor rights provincially that this isn't the end of the road, that eventually it's going to spread elsewhere and ultimately it's going to spread into the private sector. If you are successful in making the argument that municipalities shouldn't be encumbered by keeping their unions if they privatize any more than the province should, it feeds that. That's disappointing, because I honestly believe at the end of the day all that's going to be achieved, if there is massive privatization at the municipal level, is a reduction in wages. At the end of the day that's all that will be achieved, because the only way you can really save significant money when you privatize is the dollars.

When the union is gone, many times it's the same employees hired back at $7, $8, $9 an hour less. So that's a loser for municipalities. Obviously you're talking about municipalities. It's the middle- and working-class group of people, who spend their paycheque as they get it to keep their families going, who keep the local economy going. By lowering the disposable income of the biggest group in terms of numbers, all it does, in my opinion, is slow down local economies, slow down growth and it hurts small business. I stand to be corrected, but a chamber group, I think it was, in Thunder Bay even argued that the minimum wage should be increased as a benefit to small business, making the case that of course the money is spent in local small businesses in the immediate neighbourhoods and communities. So I'll leave that. If you wish to comment, that's fine.

I wanted to pose to you the issue that Mr Mackenzie raised this morning. I know you didn't have benefit of that. He's an economist with the Steelworkers. He came in and pointed out that other than one scenario, where the government didn't bring in their current planned agenda of tax cuts and a soft landing, as it's called, other than that one scenario, we're likely going to see the government in a deficit budget position. If they want to implement the tax cuts, let alone any new, ambitious attack on the debt, the only way they can achieve that and maintain a balanced budget is to cut spending, and that's going to hit the public sector, the MUSH sector. It's going to hit municipalities, universities, it's going to hit all the things that we've been hearing are the economic drivers of why this is still a great place to do business. Can you help me with that? How do you see that one? You're still pushing for those tax cuts. Unless you don't think it will, but under Mr Mackenzie's scenario they're all going to push us into a deficit position and we're going to get more cuts and that'll be a greater drag on the economy. How do you see that working?

Ms MacPherson: Mr Christopherson, I'll start and, Elyse Allan, please feel free. I think essentially the fundamental premise here is that what we need to focus on in all of these areas is that we're not simply talking about reducing government spending. We are talking about creating opportunities for the private sector to play a better role, a bigger role, particularly in municipalities as privatization and that sort of thing occurs.

We believe that by enabling those things to happen we can end up with ultimately more money in the economy, coming in more efficiently than it does through government, so that the impact overall is not a negative one.

Elyse, I don't know if you want to add some specifics to that.

Ms Allan: With respect to deficit, I would put it on the record that we certainly don't support a return to the position of a deficit. We have applauded the government for getting out of that position and certainly are looking to them to maintain that.

We do, however, believe that as it is your job to sort through the priorities, our set of priorities would focus on how to make Ontario competitive, because we believe that if we can continue to make Ontario competitive, as has been I think a fairly focused agenda, that will pay off for everyone.

We have seen that the impact of the aggressive tax cuts in Calgary and Alberta among our members is proving to be very attractive to the businesses. In terms of looking to want to leave for a more attractive tax area, that is certainly not healthy for our province or for our city. That is a fairly common level of conversation at this point, due to the aggressive moves they've made in taxation, not only on a corporate agenda but also among individuals personally.

Mr Christopherson: Is it still worth doing the tax cuts if that does push us into a deficit position?

Ms Allan: I would say that the challenge you have is to ensure that we don't move into a deficit, but that you absolutely find the affordability to do the tax cuts.

Mr Christopherson: Then that means spending cuts probably.

Ms Allan: If that's what it takes, but I would not move away from your tax cut. I think it's critical, from what we are hearing in the business community.

Mr Doug Galt (Northumberland): Thank you for your thoughtful presentation and also about Toronto. Once you move outside of Ontario and start travelling, what do they know about Canada-the name Toronto, Vancouver comes second, not the name of the province. Being a provincial legislator, I feel that's rather unfortunate, but nevertheless, it's reality.

Congratulations on your page 7, talking about the linchpin-competitive fiscal policy-something we've been working toward, and also talking about debt reduction.

I want to ask you a question similar to what I asked another group that was here. What do I tell the people in my riding about your request, if I were to vote for extra money to go to your city, particularly when I read recently in the press-I don't mean to be sarcastic here, but this is what my people are seeing-that the mayor and an entourage had to go to Edmonton to see wet-dry recycling, when we have it in my riding and we have it in Wellington? They did not have to go to Edmonton and spend several thousand dollars for that trip.

They read that there's a lack of metered water in Toronto. We get preached to about being environmentally sound in rural and small-town Ontario, when most of small-town Ontario has metered water. I read that they lost three quarters of a million dollars last year because they didn't send out the bills for pet licensing.

You talked about the gridlock on infrastructure. I can tell you, in 1995 when I drove into Toronto there was no gridlock because there were far fewer people working. You talk about affordable housing. In rural and small-town Ontario, the vacancy rate is up.

What do I tell my people? The only answer the other group really said to me was, "If you put money into Toronto, they'll have a nice city to visit." I can tell you, on concession 2, lot 41, in several of the townships in my riding, they don't want to ever come to Toronto-not that they're against Toronto; they just don't like big cities.

There are a few people in my riding who commute to Toronto to work and they appreciate having this place to work. What do I tell them if I were to vote for extra money to go for infrastructure to Toronto?

Ms MacPherson: I'll begin, and I'll just add I'm from Timiskaming riding originally, so I understand, "We'd like Toronto to be there, but not necessarily." My folks wouldn't live here if you paid them.

But to the point, I think first and foremost what we have to help people understand is that this is not just about Toronto; it's about Ontario and Canada being competitive. Your point is absolutely correct. You travel around the world and people ask you where you're from. If you say "Toronto," there's no second question. If you say "Canada," you sort of start to go down a list.

Toronto truly is the engine of the economy in this country. We have to, as responsible politicians and business people, focus on what we need to do to keep that engine healthy. We're talking about making wise investment decisions; we're not talking about dumping money into a black hole.

1250

To your point with respect to some of the particular issues you raised in the city budget, I'm sure you are aware that the Toronto board has consistently urged the city to become more focused on where the money ought to be spent to control spending at the city level and indeed to find savings. Some of the things that you've articulated have been discussed at that level.

In terms of why we have to do it, it's because this is where it starts. If at the end of the day we do all kinds of investment in other places and Toronto withers, it's bad for all of us. It's bad for your riding, it's bad for my hometown. This is where we have to make the investment so that we can, in the longer term, benefit more broadly.

Mr Galt: Excellent response.

Ms Helen Burstyn: I'd just like to add too that we're not talking just about Toronto, although Toronto is certainly the largest and most prominent economic generator for the country. We're talking about urban centres. We're mindful of the fact that there are other urban centres in the province and in the country that are suffering from some of the same inabilities, both to raise revenue and to keep up with infrastructure needs. So it's more than just Toronto.

We are also keenly aware of the fact that urban centres are more than just the cities. There is a huge spillover effect that goes into the towns and rural areas around them. Those towns and rural areas benefit from advances in the competitiveness of cities. So we're anticipating that there will be some sharing of the benefits of investing in urban centres.

Mr Kwinter: It's unfortunate that we didn't get a chance to see your presentation on Investing in Cities: An Urban Competitiveness Agenda for Ontario. I think it's far better than the presentation you made, but time constraints, I'm sure, dictated that.

There's an old cliché, "You can't strengthen the weak by weakening the strong." Years ago I developed a hierarchy of hate for Canada: everybody in Canada hates Ontario, everybody in Ontario hates Toronto, everybody in Toronto hates Bay Street and everybody on Bay Street hates the lawyers.

What you have is a situation where it's almost tragic that we have this opportunity, when you consider that we're the only country in the G7 that doesn't have a tier 1 city and that Toronto is a tier 2 city. It has all of the elements to be a tier 1 city, and the benefits accrue to everybody, not only in Ontario but in Canada.

In the limited time I have, I would like to follow up on a situation you didn't touch on in your presentation but it's certainly covered in the other document. Everybody is expecting that Toronto has a really good shot at the Olympics. That Olympic bid, if it's successful, will trigger all sorts of other things. I believe the Fung report, whatever emanation it appears in, is not going to happen without the Olympics. I was the chairman of the Toronto Harbour Commission for a number of years. I've seen so many plans come and go that never, ever happened. Unless there's a catalyst-and I think it's the Olympics that would be the catalyst-that will address some of the concerns you have with the infrastructure, some of the concerns you have with the waterfront and some of the concerns you have with the other major infrastructure deficiencies we have, we're not going to get them in the short term.

I'm just curious to know what your response is to that. What is the fallback position if we don't get them? I think if we get the Olympics, lots of things will happen; if we don't, a lot of things are not going to happen.

Ms MacPherson: I'm going to ask Elyse to answer that, conscious of the time.

Ms Allan: We share your concerns, first of all, with respect to the trade-off that some might have of whether waterfront development happens with the Olympics or without. We certainly believe that the waterfront development for Toronto is a vital infrastructure requirement with or without the Olympics and should go ahead. In fact, our very concern is that there's a perception that they are bundled.

In terms of the Olympics, we are certainly strong supporters of moving the Olympic bid forward and hoping we will prove successful in that Olympic bid because of the additional infrastructure it will bring and, quite honestly, the fact that it will get us the attention of the federal government, which to date has been a challenge for Toronto in terms of attracting focus on our urban requirements. So I think, between the waterfront and the Olympics, that does provide a vehicle for additional investment in Toronto which we desperately need, particularly in this area of infrastructure.

I'm not sure if that completely addresses your question.

Mr Kwinter: Yes, it does.

It's too bad my colleague Gerry Phillips isn't here because he loves to wave his chart that shows the inequity in the tax allocation for businesses in Toronto and businesses that are just across the street in either Markham or Vaughan or some of these other municipalities. There really is an inequity. It is very obvious. As the Toronto Board of Trade, I'm sure you're confronted with this on a daily basis, where you're trying to attract industries and they will say, "Why would I possibly go to Toronto when I can go in the adjoining community and get all these tax benefits?" How do you address that? Have you been able to address it?

Ms MacPherson: The property tax situation in Toronto is something that we focus a great deal of attention on. You're absolutely right, it's a critical success factor. To Elyse's point earlier, it's one of the things that influences decisions about where to locate a business or whether to stay here, for example, when your lease has come up. One of the things the province, in our view, needs to continue to focus on is ensuring that those inequities are reduced over time, that there are hard caps and that over time we get to a stage where we are much more competitive and the business community or the business properties in Toronto are not bearing such a disproportionate share of the taxes.

It's particularly keen if you look in the centre of the city, downtown. We have a situation where a vast quantity of office space comes up for renewal leases in the next two to three years. Property taxes have risen so much that we run the risk that if we don't have very concrete plans in place to ensure that we can demonstrate that those taxes are coming down, there will be great incentive for businesses to actually leave the core and go out.

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

One quick announcement: our session this afternoon will be in room 151. We'll recess until 2 o'clock.

The committee recessed from 1257 to 1400.

BMO NESBITT BURNS

The Chair: I bring the meeting back to order, as it is slightly after 2 o'clock.

Our first presentation is from Nesbitt Burns. I would ask the presenter to step forward and state your name for the record, please. On behalf of the committee, welcome. You have one hour for your presentation this afternoon.

Mr Doug Porter: Thank you, Mr Chair. My name is Doug Porter. I'm with Nesbitt Burns-BMO Nesbitt Burns, actually. We changed our name officially about a year ago. I welcome the opportunity to address the committee today. Seeing as the economic environment has changed so dramatically over the past three months alone, I thought it would be instructive to actually stick to our knitting today and basically go over the economic outlook and what we see in the year ahead, how the slowdown that we've seen develop in the US will affect Canada and its implications for Ontario.

Just generally, I would characterize our view on the US and Canada as being a little bit below consensus, but we're certainly not at the low end of the spectrum. Fundamentally, we do not believe that a deep recession will take place in the US economy, but we can't rule out one quarter of negative growth or indeed even a shallow brief recession. We readily admit that in the forecasts we are going to put forward to you today the risks are tilted to the low side.

Clearly, the biggest risk for Canada and Ontario in the year ahead is from the US slowdown. I don't think there is any debate about that. Our own domestic fundamentals are actually quite fine; not perfect, but certainly a lot better than, say, what we saw in the early 1980s or the early 1990s. The governor of the Bank of Canada actually suggested that very point yesterday in his first speech.

I would like to begin with a bit of an overview on our US outlook and why we believe that any downturn should be relatively mild. I've actually brought along a little handout that might be helpful if I walked you through it. First of all, I would like to spend some time on the US. I've prepared a list of where we think this downturn developed, where and why. It's instructive because it will also help us understand what the chances are that we'll pull out of it relatively quickly. Then I'd like to go into some of the reasons why we don't think we are headed for an out and out recession.

First of all, let's look at the backdrop very briefly on what exactly caused this downturn. There are a number of factors in the States. We listed about nine of them. First, the US dollar, against all odds and even with a record trade deficit last year, continued to rise, and this basically hit the competitiveness of US manufacturing. I don't think this is the number one factor by any stretch, but the area of the US economy that is facing the greatest pressure right now is the manufacturing sector, and part of that is due to the strength of the US dollar.

The second factor I listed and probably the single-most important is the fact that the Fed was tightening monetary policy. Admittedly this was a little bit less restrictive a cycle than we've seen in the past, but still they raised rates by almost two full percentage points. It took time for that to hit the economy, but it certainly did. That tightening cycle began in the middle of 1999, and the usual rule of thumb is that it takes about a year for an increase in interest rates to fully work its way into the economy, and sure enough the economy began to slow about a year after the Fed first began raising rates.

Third, on balance, fiscal policy in the US was still relatively tight last year. Taxes did rise faster than incomes, and we did see their budget surplus rise again. Again, I think that was a relatively minor factor.

The fourth factor was quite important: the sharp decline in the stock market, including a 40% decline in the NASDAQ. This worked its way into a weakening of the economy through many channels: the direct hit to wealth; the fact that the venture capital market, after providing a lot of impetus to the growth, really dried up in the fourth quarter; and finally and probably most importantly was the hit it delivered to consumer confidence, especially in the fourth quarter of last year.

A fifth factor was the fact that credit spreads-in other words, the difference between what a corporation pays on bonds and what the government pays-widened quite dramatically throughout last year, and we also saw that in the commercial paper market. In other words, loans for very short-term periods of interest really picked up at the end of last year as investors became much more reluctant to lend to corporations through the bond market.

We saw a similar episode of that with banks, which tightened credit standards considerably throughout 2000, actually to an extent we haven't seen since the recession of the early 1990s.

Seventh, and probably what I would say is the third-most important factor, was the rolling spike in energy prices. First it was oil prices that picked up through 1999 and peaked in early 2000, then heating oil prices began to pick up during last summer, then natural gas prices and then of course electricity prices this year. So Americans have been hit by one energy shock after another over the past two years, and eventually this weighed not just on household incomes but also on confidence.

Then I think what eventually pushed the economy over the edge, when it had all these depressing factors operating on it, were the two things that really hit in November and December. First was the uncertainty that reigned after the election and the muddled election result; and finally the fact that the weather was so miserable in the US in November and December I think to some extent did exaggerate the weakness of things like retail sales in December. Certainly it contributed to the whole feeling and view that the US economy was in serious trouble, and they gave us very weak numbers for the Christmas selling season.

Combined, these things brought what had seemed like just an incredible expansion-the economy was still growing at a 6% annual rate as recently as the middle of last year-to essentially a complete standstill around the turn of the year.

Of the indicators that the economy has indeed ground to a standstill, I think the most telling is the plummet in consumer confidence we've seen just in the past three months. Leading indicators as well have fallen precipitously in the US. Admittedly, some of that is just a reflection of the decline in the equity market, but some of it also reflects a real decline in things like orders. We have seen a real decline in the sale of goods. It isn't just in inventory correction and it isn't just a financial correction. We actually have seen a real slowdown in goods sales.

Also, a classic warning of impending slowdown in the economy is a sharp buildup in inventories, and we certainly saw that in the second half of last year. After basically a 10-year period when US industries were consistently bringing down the ratio of inventories to sales, they were constantly getting their inventories under better management, we saw real flattening out in the middle of last year and then a sharp pickup at the end of the year. That's a classic warning signal.

Also as evidence that the economy really has slowed, I think it's most clear in the manufacturing sector. The National Association of Purchasing Management is reporting some of the weakest numbers we've seen since the recession of 1990-91. As well, we've seen orders actually declining for so-called basic industry, which excludes the high-tech industry. But even beyond just the basic industries, we've actually seen a sharp slowdown very recently in the technology sector. Of course, this area had been leading the US boom basically throughout the latter half of the 1990s, and over the second half of 2000 we saw that sector slow quite dramatically.

Generally, factory employment and hours worked have fallen quite sharply in the US in the last couple of months. Again, employers are acting very quickly in response to the slowdown we're seeing in demand; and finally, capital spending is also falling.

With that backdrop, I'd like to answer the question of whether this means the US economy is headed for a deep recession. Quite frankly, the answer is no. I've listed 13 factors why we think this is not going to turn into an outright recession in the US. First and foremost, I think most of the weakness we've seen really has been concentrated in the manufacturing sector to this point. I can list a number of sectors that are still looking quite strong, and many of these apply to Canada and if anything are even more so the case in Canada.

First and foremost, in direct response of course to the strength we've seen in energy prices, energy exploration, in other words drill rigging activity, is absolutely exploding, and that's even more so the case in Canada. In a related sense, utility construction is on a strong upswing, and there are even a number of generating facilities that are on the books now in California, not surprisingly.

1410

Office vacancy rates are very low. That's a direct contrast to what we saw going into the downturn in the early 1990s, when office vacancy rates had been extremely high. Again, if anything, that's even more so the case in Canada, so it's not as if we're headed for a big downturn in commercial construction.

Also, in complete contrast to what we saw in the early 1990s and certainly in the early 1980s, home affordability is actually increasing rather than decreasing. Yes, we have seen home prices rise a bit, but we've also seen mortgage rates come down quite sharply in the US over the course of the past year and similarly in Canada. So housing affordability is still quite good and home sales are still relatively firm. They are not as high as they were, say, a year ago, but they're certainly not pointing to an out-and-out downturn.

There's a similar story in auto affordability. A lot of the weakness we've seen over the last couple of months in Canada and the US is a sharp pullback in auto sales, but a lot of that has been driven by business purchases of vehicles. Surprisingly, new vehicles purchased by consumers have actually held in relatively well, and sales were surprisingly good in January. Admittedly, the anecdotal evidence from February isn't quite as good, but again I think the rebound in January shows that a lot of the gloom that we saw in December was partly weather related and I think it really did exaggerate the extent of the downturn.

There's a similar story in tech spending: most of the weakness we're seeing is on the business side. Consumer spending on technology goods, whether it's computers or even games or whatnot, is still quite strong.

There's a similar story for consumer spending on services, which accounts for over a third of GDP. This area of spending is still hanging in very well. Admittedly, some of that is spending on utilities. In other words, because it was such bad weather in November and December, consumers had to spend a lot of money on their electricity bills, and that gets counted in services as consumer spending. But things such as restaurant meals and when you pay your Internet service provider, that counts as a service, and growth there is still looking very good.

Looking ahead, one of the reasons to think we will avoid a recession in the US is that it does look as if Congress and the President will work together for a fairly considerable tax cut. Whether that will actually help consumer spending this year or not is debatable, but at the very least I think it will give a bit of a boost to consumer confidence.

Probably more importantly, we've certainly seen that the Fed now views avoiding a downturn as job number one. They've already cut interest rates by a percentage point. I'll get into it a bit later, but we think they will cut rates by at least another percentage point. If any of these other factors aren't in place to support the recovery, we think the Fed will cut rates even more aggressively than what we've laid out. Simply put, the Fed does not want a downturn at all at this point. There is no reason for it. Inflation is not a major problem, and the weaker the economy looks now, the more aggressively the Fed will cut rates and the more likely it is that a rebound will occur in the second half of this year.

Energy prices, which had been one of the greatest depressants on consumer confidence over the past couple of years, are already falling. Here you can certainly look at it as a glass half-full, glass half-empty scenario. Natural gas prices are down 50% from their highs, but they are still up by about double from year-ago levels, so it's a bit of a good news-bad news story there. It's a similar story for oil prices more generally.

While credit has been tightened by the banks, it still is relatively available. Even though bank lending standards have tightened, we have seen bank loans, even so, still accelerating. Even though they have to pay more, corporations are going to the bond market a lot, quite extensively, and they still are able to borrow, even if they are paying a bit more. Mortgage lending and money-supply growth are also accelerating, so they certainly are not pointing to a downturn in the US economy overall.

Also, typically, factory inventory corrections do not last long. If this really is just an inventory correction in the manufacturing sector, it could be quite severe but it could be over within a six-month period, and that's what we're hopeful is what will play out over the next six months.

Some people say this isn't an inventory correction but actually an investment-spending correction; in other words, we've seen a capital-spending boom in not just the US but Canada as well over the past five years. But to some extent that, arguably, is already coming under control. A lot of these capital-spending goods are actually imported, to the extent that if there is a cutback in capital spending, it actually hits imports more than just the US economy. In other words, it affects places like Germany and Japan as much as it affects the US.

That's the backdrop and the main reason why we don't think the US is going into a deep recession. Again, as I said, we effectively, as a base case, think that we'll get zero growth in the first quarter and little better than 1% growth in the second quarter. We do think we'll see something a little bit better in the second half of the year, but I think our main message is that we don't see the US economy going back anything close to what we've become used to over the past five years. We think at best we're looking at about a 2.5% to 3% growth trend in the second half of the year and something similar to that in the year ahead.

I thought going through some of these charts might help put a bit of colour behind that outlook. It is quite interesting to look at the first chart, the consumer confidence, to see how well it was holding up right until the fourth quarter; in other words, that long list of factors I went through before the election and before the late-year slide in stock prices and that last run-up in energy prices. You can see consumer confidence was still quite high, but it has fallen even more than what we saw in the Asian crisis. I would argue it's unlikely to rebound as rapidly as we saw coming out of the Asian crisis. A lot of the downturn in the Asian crisis was a purely financial event. This is much more than a financial event. We've already seen layoffs hit their highest level in the last couple of months that we've seen in the past 10 years. That has a meaningful impact, of course, on income and spending. So it's not going to rebound like it did at the end of 1998 and in early 1999.

The second set of charts shows that there were plenty of warning signals going up from other real indicators early in 2000, but they didn't really begin to become troublesome until late last year or even the turn of this year. For instance, the leading indicator was falling quite sharply as early as the middle of last year, but it didn't really dip below trend until late last year. Similarly, inventory-to-sales ratios actually bottomed out at the start of 2000. They were starting to back up through the middle of last year, but they didn't really become troublesome until they spiralled quite sharply at the end of last year.

The third chart shows just how deep a downturn this is in the manufacturing sector. This one line I've labelled "factory survey" is also known as the National Association of Purchasing Managers report. This survey is really taken very seriously by the Fed. I think that to some extent, when it dropped so sharply for the December report, which came out the first working day of January, that was one of the reasons the Fed decided to react so aggressively the next day by cutting rates sharply. Then, when it fell again for January, I think that's why they followed it up with another half-percentage-point move at the end of January. So keep an eye on this survey when it comes out for February. It will be reported the first day of March. If we don't see much of a recovery, I think that'll give us a real signal as to the intentions of the Fed looking ahead.

I think another factor that's causing the Fed to ease so aggressively is this tightening in lending standards by the banks. The chart at the bottom of page 3-4 shows just how tight lending standards in the US have become and that they are actually as tight as, if not tighter than, what we saw in the recession of the early 1990s. Essentially, by cutting interest rates, the Fed is trying to offset this tightness we're seeing in lending standards.

The next set of charts shows how the so-called low-tech, or at least the industrial sector outside of high technology, was sending all sorts of warning signals throughout the early part of the year 2000. Both orders and shipments were tailing off. Yet, the high-tech sector hung in-not just hung in but was doing spectacularly well-right up until about the middle of 2000. Then you can see that orders, just in the last couple of months, tipped over quite violently, and yet shipments are still rolling along at quite strong growth rates. That's one reason it took so long for the big technology shares really to react to the weakness, because they were still growing and shipping out the goods at just an incredible pace. Actually, they still were up until the fall.

1420

The chart on the bottom part of that page shows that the purchasing managers' report is not an infallible signal of recession. It actually has dipped below the so-called boom-bust line five times in the last 15 years, and only once was that associated with a recession. I guess the one warning here is that it has weakened to the same extent that we saw in the downturn in 1990-91. But again I stress that I really think the manufacturing sector is bearing an unusual burden of the slowdown in this downturn, partly because of the strength of the US dollar in this slowdown.

What does all this mean for Canada? While on balance we do see overall growth in the US of just a little over 1.5% this year-that is a little bit below their long-term trend of 2.5%, but it's well below the pace of 4% we've become used to in the past five years-we see a very similar pattern for Canada, a little bit stronger than in the US but not considerably different. As in the US, we essentially see growth going to about zero in the current quarter, we see growth of only a little bit better than 1% in the next quarter and, similar to the US, we see it going back to a pace of about 2.5% to 3% in the second half of the year. Again I would stress that we do see the risks as fairly heavily tilted to the low side.

We think that Canada will outperform the US in the year ahead. Effectively the two economies have been very similar over the past four years in terms of overall growth rates. The one exception was 1998, when we were certainly hit a lot harder than the US by the Asian crisis and the downturn in commodity prices in that year. But outside of 1998, you can see that in 1997, 1999 and 2000, Canada and the US had almost identical growth rates. But by the second half of last year, Canada was looking a lot stronger than the US. For instance, in the fourth quarter, it now looks as if the US only grew by about 1%, whereas Canada probably grew by a little bit better than 3%. So certainly we had a little better momentum than the US heading into this year, and to some extent we think it will carry over a little bit into this year.

I certainly don't want to give the impression that I think Canada can escape what's going on in the US. That's why I've harped so long and hard on the US outlook. I would just like to draw your attention to the charts on page 9-10. I'm sure you're familiar with this overall pattern. I think it's quite clear just how closely tied Canada is to the US cycle, and I would suggest that since the free trade agreement and NAFTA, if anything, the tie has become tighter than ever.

Clearly, there have been some cycles where Canada has deviated for a time from the US, but certainly the pattern has been almost identical for the past 35 years. You can perhaps make out that in the early 1990s Canada was pretty consistently a little bit weaker than the US but, interestingly, we had almost the exact same growth pattern as the US, just a little bit lower throughout that period. One significant difference I can point out to you was the mid-1970s. Canada certainly did avoid the downturn we saw in the US. Some of that was related to the boom in energy prices. Canada benefited, while the US didn't. To some extent I would suggest that would make the case that Canada can do a little bit better than the US in the year ahead. Unfortunately, that doesn't do a lot for the Ontario economy. So I think it's very much the case that Ontario will follow the US pattern overall.

"The Ties that Bind" chart, the second one, basically just drives home the same point, the fact that fully one third of Canadian GDP is now accounted for by exports to the US alone. That's up from about 15% as recently as 15 years ago.

Turning to the next set of charts on page 11-12, you can see that we had a very similar situation on the factory side in inventories building in Canada. As in the US, there were some signs of trouble just beginning to develop in the first half of 2000, when inventory growth began to rise a little bit faster than manufacturers were able to ship their goods out. The two didn't divert significantly until the second half of last year, but clearly there was a break in the third quarter of the year, when shipment growth really began to fade quite rapidly and inventory growth continued to rise.

Very recently there has been some slowdown in inventories, but the inventory-to-shipment ratio is still quite a bit higher than it was even a year ago, and I think there is still some more to be done on that front, that manufacturers will continue to cut production to bring inventories back in line with shipments.

I do think this process can take a fairly brief period of time, but there's no two ways about it: it is painful while we're going through the process. I think it will largely be concentrated in the first and second quarters of this year.

Now, I'll freely admit that forecasters have been quite slow or quite reluctant to revise down their forecasts for Canada. In fact, we don't have the official consensus forecast for forecasters for February, but as recently as January it was 3.3%. The Economist magazine has a slightly more up-to-date consensus forecast. They're looking now at 2.8% growth in Canada. I think that's a little bit more realistic. We're actually a little bit lower, at 2.3%.

I think one of the reasons why forecasters have been a little bit reluctant is, let's face it, we've been burned over the last four years consistently underestimating the strength of the Canadian economy. If you look at the past four years, the average underestimation of Canadian growth has actually been a little bit more than 1%, which is a bit embarrassing for the forecasting community. The miss was especially bad coming out of the Asian crisis, when everybody was doom and gloom at the end of 1998. The average forecaster had scaled back their forecasts to only 2%, and indeed the economy sailed right through that period, with incredible growth in 1999 and not too dissimilar a story last year.

So I think to some extent forecasters have been very, very reluctant to cut their forecasts. But after a number of years of underestimating growth, I clearly think the risk in the year ahead is that we will indeed overestimate growth. The main reason for that is, to some extent, if you look at the chart on the top of pages 13 and 14, the slowdown that we're seeing in the technology sector. A lot of the underestimation of growth in the last few years is because to some extent we have consistently underestimated the contribution of investment in high-tech. That's added at least a percentage point to growth, if not more. I'm taking a very conservative measure here of the contribution of the tech sector. Consistently, this has added to growth quite a bit more than anyone had thought possible in the last couple of years, and that's definitely the case in Ontario. But given all the warning signs that are going up from the tech sector, I think it's quite feasible, if not even likely, that this year we're going to see that what it's given in the last couple of years it's going to take away in the year ahead. In other words, real GDP outside of tech investment actually will hang in there relatively well, but headline GDP will actually drop well below the trend.

Just turning to some of the specifics on the outlook, certainly so far most of the slowdown or any signs of slowdown we've seen in Canada have been in the auto sector. It's not just the production side; we actually have also seen a bit of a slowdown in Canadian auto sales. Admittedly, auto sales are coming off a great level. We saw record vehicle sales in 2000, but there certainly was a slowdown underway by the end of last year. Encouragingly, sales actually did pick up a little bit in January, as in the US, but I'd say the trend overall is still quite a bit weaker. Certainly, auto production has tapered off quite dramatically.

Just generally, businesses are becoming much, much less optimistic. Stats Canada puts out a quarterly survey of manufacturers that's call the business conditions index. We convert it into an index, something like the US purchasing managers index, where a reading above 50 is consistent with growth; a reading below 50 is a decline. In the first quarter of this year it fell to 38, which is the worst rating we've seen since the recession. Admittedly, it's not as deep as the levels we got in the depths of recession in 1991, but it is about the same kind of level that we were at right at the start of the 1990-91 recession.

Admittedly this survey was taken right as a lot of the worst news was coming out on auto production and when all the scare headlines were rippling through at the start of January. But I do take it seriously. Manufacturers are obviously quite worried about their order books. As in the US, I think that the biggest risk is to manufacturing and, by extension, the biggest risk is to the Ontario economy of the 10 provinces.

Employment overall is holding up well, but the one area that's really tailed off is goods-producing employment. That includes things like manufacturing, construction, agriculture and utilities. That's where we have seen a very perceptible slowdown over the past year.

1430

Just to point out that it isn't a one-sided story by any stretch and that to some extent the economy is exhibiting a real split personality at the moment, similar to the US, while manufacturers are warning of very tough times ahead, we're seeing very decent growth on things like consumer spending and construction. Building permits hit their highest level in 10 years last year and they were still relatively firm at the end of last year. Housing starts, while they did taper off a bit at the end of last year, bounced right back in January, and home sales were quite strong as well last year. There are certainly no signs from the residential real estate market of severe strains. Outside of the auto sector, retail sales are still looking relatively firm. As much as we're seeing weakness in goods-producing employment, service sector jobs are still ticking along quite well. We've seen over the past year growth in the service economy employment of nearly 3% and certainly no early warning signs of a recession at all on that front.

What does this split personality mean for monetary policy? How will the Bank of Canada react to this?

To some extent it is confused by a couple of factors: the fact that we have a new Bank of Canada governor, who I think to some extent has to establish his credentials and I don't think wants to be seen as making strong steps either toward being overly tight in monetary policy or being overly loose. I suspect he will follow a very gradualist, measured policy. As well, the renewed weakness of the Canadian dollar, some of which admittedly has been driven by the sudden swoon in Nortel, complicates the Bank of Canada's task. So I think that while we will continue to see interest rates come down, the bank will be much more cautious and much more measured than what we've seen by the Fed. I think they will probably continue to move in quarter-point increments, but quite frankly, I don't know. We haven't seen Mr Dodge make an interest rate decision yet. We have to judge him by his actions and not by words, but certainly his words suggest that he's still relatively upbeat on the economy and that he doesn't have any sense of urgency whatsoever.

So I think we will see interest rates come down in a very measured fashion. We think Canadian short-term rates will fall by about another percentage point, probably coming down by about a quarter per cent in each one of the next four decisions that the Bank of Canada has. That means that by the summer we'll see interest rates in Canada down by about a per cent, more or less matching the decline in US interest rates that we see in the year ahead.

I'd just like to conclude by what this might mean for Ontario in the year ahead. I've tried to weave in as I've gone some of the implications for Ontario.

Definitely we are the most closely tied to the US economy of all and we have seen the manufacturing sector certainly weakening consistently more than the rest of the country, as you can see from that chart on pages 17-18. I will point out that some of the strength in the rest of the country is a bit exaggerated because manufacturing shipments actually include refined petroleum and these numbers are not inflation-adjusted, so they've been bumped up a little bit by the run-up in oil prices. But I think the main pattern still holds there after a number of years, where Ontario industry was outpacing the rest of Canada. We have seen, which I think is clearly illustrated by what's going on in the auto sector, a clear slowing in Ontario manufacturing, more so than in the rest of the country.

Interestingly, that is not the case in consumer spending. Consistently over the last four years we've seen Ontario consumer spending growing faster than that in the rest of the country. I think some of that is related to the fact that Ontario has higher population growth and so it's natural that retail sales are going to grow faster than in the rest of the country. But you can see that even over the course of the past year we haven't really seen that same slowdown that's developing in manufacturing spilling over into consumer spending. Again, that goes back to the split personality of the economy.

That stands out even more so on employment, which I find absolutely fascinating. Ontario employment has been growing faster than the rest of the country, and that's even more so the case in the past couple of years. This is a smooth number, and actually, if anything, if I were to take the latest number-in other words, January-you'd see even more of a gap than what's showing there. So certainly to this point there isn't that slowdown in the broader economy showing up yet in Ontario. I don't think this happy circumstance is going to continue for long, and we will certainly see in Ontario employment gear back quite significantly in the year ahead, but at least heading into this year it has been remarkably strong. I suspect that is going to show up in the fiscal numbers for the fiscal year ending in March, but needless to say, the situation will change rather sharply in the fiscal year ahead.

On the construction side, Ontario has looked very much like the rest of Canada. After a relatively strong year, we did see a bit of a slowdown in permits by the end of 2000. But overall, it was a relatively good year for the construction industry and I'd say the outlook for construction still looks relatively healthy, even though we did get a bit of a slowdown in permits at the end of the year.

I'd just like to conclude with one number that came out today, and that was on business investment intentions for the country as a whole. This was a survey taken over the turn of the year, from November to January. Canadian businesses are looking at a real slowdown in business spending, but they're still looking at a small positive this year, certainly nothing like we saw last year. Remarkably, the strongest growth in the country was to come from Ontario, which I find staggering. We actually are going to see a big pullback in manufacturing capital spending, but businesses overall in Ontario are looking to ramp up capital spending, which I do regard as encouraging.

So even though Ontario is the most closely tied to the US cycle, we are not calling for an out-and-out recession. We have scaled back our forecasts for Ontario growth to 2%, which I understand is a little bit lower than the finance ministry is looking at and I think it's a little bit below consensus, but I do think it's realistic. It's cautious. But again, I would say the risks are probably tilted to the downside for that number.

In summary, economic forecasts are fraught with uncertainty at any time, and I would say that's probably more the case this year than ever. So I would advise that the province plan with extreme caution in the year ahead. GDP forecasts for the province have already been cut by more than a percentage point, and I would freely admit that the room for error is probably that great even from the revised forecasts.

There are two aspects of economic performance to keep in mind at any time: the cyclical and the structural. I think this is a cyclical slowdown. For a province, it's extremely expensive to try to fight a cyclical slowdown with fiscal policy. In other words, we are such an open economy that I think fiscal policy really cannot do that much to fight a cyclical slowdown. In a structural situation, certainly fiscal policy can do wonders or extreme damage. There it is very important that we get fiscal policy right. But there really isn't that much that fiscal policy can do to fight a slowdown. In other words, I don't think Ontario should or could try to cut taxes or increase spending to avoid this slowdown. I think essentially we have to try to get fiscal policy as correct as we can, basically ride out the slowdown and hope that it won't last, just hope that we have fiscal policy right and that the slowdown won't last long.

That's it's for my prepared remarks.

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

Mr Galt: Thank you for a most interesting presentation.

It's interesting that during the week, while we've been on the road, it started out we were hearing 2.8% GDP growth. The other day it was 1.6%. It's bouncing all over the place.

I have two questions. One relates to the US tax cut. It sounds like the Bush administration is going to come out with one, which may stimulate the US economy, and we kind of tail along, as indicated. But where does that put us in a competitive position if they cut their taxes? Are we then going to have to cut that much more to stay competitive? We may lose our competitive edge, and how will that affect us?

Secondly, if you were the Minister of Finance, after the presentation we heard first thing this morning about how, depending on whether we stick with our tax cuts and stick with our other fiscal policies-we may have a soft landing or a hard landing was the way that economist described it-what would you recommend specifically, in order of priority, the Minister of Finance should do to ensure that Ontario comes out of the recession-or "downturn" might be a better word; let's call it that-in the best shape?

So two: competitiveness with the American cut in taxes, and what would you do if you were the minister to bring Ontario through this downturn the best way?

1440

Mr Porter: Well, any potential competitive damage to the Canadian and Ontario economies from a tax cut in the US will take time. It's not as if we have to react instantaneously to a tax cut in the US. First of all, we should see exactly what they do before we react. To a large extent the response has to come from Ottawa, first and foremost, but it does drive home the point that we have to do what we can to make sure our marginal rates do not get far out of line with the US. That doesn't mean we have to mirror the rates one for one. Certainly there are a number of differences in social policy that we have, and there are a number of reasons why Ontario taxes or provincial taxes generally are higher than those in the US. We of course have gone years and years with a tax gap. I would make the case that it has hurt us on a competitive front but it hasn't destroyed the economy, so it's not as if we have to react instantaneously. But I think it behooves the government to try to keep as much in line as we can with the US, without gutting social programs, obviously.

I made the point last year that the one concern I had with the overall program of Ontario tax cuts is that they really didn't do that much to bring down marginal tax rates. Marginal tax rates in Ontario are not that different from other provinces. I think that's really where the focus should be, on making sure that marginal rates, which really are what matter for work effort and for investment, are brought down as much as is reasonable.

As to the second part of the question, in terms of what I would recommend facing this downturn or this sharp slowdown, again I think it goes back to my summary in that really there is not that much a province can realistically do to fight the cyclical downturn. At the very least, they shouldn't make it worse. In other words, they shouldn't be out there doing the kinds of things that are going to crush consumer confidence even more. I don't think spending cuts are exactly a helpful thing at this point, but I do think that probably small tax cuts and at least the promise of more tax relief down the road can be very helpful. In other words, "This is where we want to get to, and as circumstances allow us, this is what we will try to deliver. This is what our goal is." I think that helps confidence both for businesses and consumers. It gives the impression that this is Ontario's focus and that we're trying to get the fundamentals right, that yes, we're going through a tough time now but we are absolutely committed to providing the best possible environment for business investment and for the work environment.

The Chair: We have one minute, Mr O'Toole.

Mr O'Toole: Quickly, I just want you to comment on how important the current inventory adjustment issues are, which is a lot of the manufacturing, and then, more importantly, the diversification in the domestic economy in Ontario, moving more from auto to tech and other diversified sectors.

Some of the recent comments in the Globe and certainly in the Post this morning were about the importance of the energy sector and the housing sector, which are both domestic issues technically. We're well positioned in those areas. If you could comment on those. Our belief, and Minister Flaherty said in his opening statement and I think you show that too, is that the domestic economy is stronger perhaps, showing more ability to be sustainable. How important are taxes in that part, both the capital tax and the tax on basically inventories? Are they an important part of the fiscal policy tools that we have?

Mr Porter: I'll work in reverse; I'll start with the last question. There's no question that one of the reasons consumer spending has done relatively well over the past year-and we think the fundamentals are good in the year ahead-is that we have seen disposable income finally coming back to life. Part of that is due to the fact that wage settlements have started to pick up a little bit. Employment growth has been strong. Also, there is no question that there has been a real kick to disposable income from tax cuts, both at the federal and the provincial level, across the board. I think that has done a lot, not just for confidence but for actual disposable income growth.

Actually, we're looking at disposable income growth after inflation of 4% last year and about 2.5% this year. Those are some of the best numbers we've seen in a decade, so I think that is a very important factor behind why we think consumer spending will hang in there relatively well and why there is a split personality.

In terms of how well-diversified the economy has become, I think that's a gradual process. That takes place over years and years. Slowly but surely, I think that goes for Canada as a whole. We're becoming a little bit less resource-intensive, there's no question about it. But compared to other G7 economies or other industrialized economies, we are still more reliant on the resource sector than any others. That hasn't changed and that won't change any time soon.

Definitely, the tech sector has risen to be a much more important part of the economy, but it too is quite cyclical and I think we are seeing that. We are going to see a real slowdown in the tech sector. I don't think it is so different from other sectors of the industrial economy or industrial machinery. It goes through an inventory cycle, it's dependent on capital spending, and if capital spending slows, it's going to slow as well. While the structure of the economy is changing, that doesn't mean we can completely avoid the business cycle. The business cycle will look different, but we're still faced with a cycle at the end of the day.

Mr Cordiano: Thank you for your presentation. One of the things that strikes me is that you're forecasting a real GDP growth in Ontario of 2%. I believe the finance minister has projected a 2.8% growth rate, so yours is considerably more conservative than the finance minister, who is a Conservative. It's interesting that there is such a gap, 0.8% of a difference, in your forecasts, and forecasting being what it is, I think you should err on the side of being cautious at the present time.

That being said, my concern has to do with the fact that the province may face a revenue shortfall, given the real slowdown in the economy. If there is what amounts to a revenue shortfall, my question to you is, is it a wise course of action to have tax cuts take place at the present time at the provincial level? I've heard what you said about adjusting or fixing the marginal tax rates. You would probably give priority to that rather than an actual cutting of taxes across the board.

Do you think it would be wise for the government of Ontario at the present time to consider any additional tax cuts, given the fact that we may be facing a revenue shortfall? As well, there is balanced budget legislation. They're having to balance the budget by the time this term is up in about two years.

Mr Porter: Just starting with the first part, I think it's important to point out that the outlook for the economy has shifted quite dramatically in the past three months. To put it frankly, I don't think a difference of even a percentage point between forecasts is unreasonable at this point; the outlook is so uncertain. We've seen the US consensus shift dramatically just in the past three months, so I don't regard that as a huge gap.

The second part of your question, going back to my earlier comments, I think it's probably wise to let up somewhat on the pace of tax cuts at this point, just to be fiscally prudent. That doesn't mean the whole process has to be ground to a halt, but I think it is important to remember that we are also getting, and we will get, a lot of relief from Ottawa as well. They've already laid out quite a fairly serious tax-cutting program over the next five years, and indeed last year's Ontario budget did as well, certainly on the corporate side and to a lesser extent on the personal side. So I don't necessarily think it's critical to continue to push that issue at this point but, as the one member brought up, I think that realistically we are going to be faced with more competitive pressure from the cuts in the US. We can't put our heads in the sand and ignore that that competitive pressure from lower US taxes, if anything, will be accentuated in the next couple of years. I think it is important for the government to stress and to continue to aim to bring down taxes over the medium term, as much as is affordable within the constraints.

I would be interested to see the final numbers for the fiscal year that's just about to end. I suspect that, given the strength we saw in the economy last year, we might be in a better starting position than has been publicly put forward, but I'll wait to see the final numbers.

1450

Mr Cordiano: My concern would be, and I think the government's concern should be, that we not run a deficit. I think that would have some negative impact in terms of consumer confidence and business confidence in general if the province were to start running deficits again, because that could be a likely scenario if we continue to have a downturn that exceeds your expectations or is certainly well below what the minister is predicting.

Mr Porter: I think that if we got into a situation where we had an out-and-out recession, then confidence would already be so destroyed that the fact that Ontario had slipped into a deficit really wouldn't do much more damage. That doesn't mean I would take it lightly that Ontario slipped into deficit, but it really does depend on how dire the economic circumstances are. If you had the US economy going into recession, then I think Ontario would not avoid it. I think even the US government could be looking at slipping back into deficit if they had an out-and-out recession. I honestly think it would be forgivable, at least short-term, if Ontario had, say, a one-year period where they dipped into a small deficit.

My own view is that balanced budget legislation really should be over the cycle and you should not be in a situation where you are forced to cut spending dramatically in the face of a downturn, or raise taxes, for that matter, in the face of a downturn, just to keep the budget balance from slipping into a deficit for a brief period of time. Again, that doesn't mean I don't take it seriously. I think that should only be reserved for a deep recession, something more than just one or two quarters.

Mr Christopherson: Thank you for your presentation. I remember last year's discussion.

Just so I understand clearly: you're suggesting that if the indicators continue to show that the government would be pushing itself into a deficit position, they ought to let off the gas on the tax cuts so they maintain the revenue stream for the short term.

Mr Porter: The government typically only sets policy once a year or so, which we'll see in a couple of months. I guess what I'm saying is that this is probably not the time to make big steps in either direction, whether it's cutting spending or increasing spending. By the same token, the direction should still be down for taxes. I think the long-term goal should still be lower taxes.

What I'm saying is that cutting taxes or increasing spending at this time would not be a fiscally cheap way to boost the economy. In other words, Ontario is such an open economy that a lot of that fiscal stimulus flows right out of our borders. That's not a fiscally cheap way to do things.

Mr Christopherson: I found it interesting that a lot of the groups that have been coming in over the last couple of weeks have been saying that reducing the debt, paying off the debt, is the absolute, number one priority. What strikes me is that many of them were the same folks who were saying that the tax cuts had to come first, and since the government implemented their tax cuts before they balanced the budget, it meant they had to borrow the money and continue to borrow money to give the tax cut, which increased the debt. So it's like they wanted to have their cake and eat it too. They wanted the tax cuts, which have benefits right up front, and now they want to say that the debt is the number one priority and therefore you have to keep taking revenue stream out of social expenditures and into debt.

Would we not have been better off to follow a plan that had us balance the budget first? Wouldn't we be stronger right now to withstand this and have a little more manoeuvring room, had we waited until the budget was balanced, not made the dramatic cuts that were necessary in social spending-and we're hearing about the price we're paying for that, for health care, teachers, infrastructure; AMO was in here this morning talking about municipalities; my own community in Hamilton just got hit with a 15% increase for water rates. Would the government not have put us in a stronger position now, had they waited to do the tax cuts or any other expenditures with a fiscal dividend until we actually had it in hand, rather than doing it before the books were balanced?

Mr Porter: I think any way you look at it, Ontario faced a very tough situation a number of years ago. There were a number of competing needs that had to be faced. In hindsight, the budget deficit actually did come down a lot more sharply than laid out initially. But by the same token, Canada had really gotten out of line with the US, and I do think that was the case in Ontario on the tax front. If you recall my presentation last year, I think I tried to make a strong case that you really can show the widening differential in taxes. I would make the case that that led to the persistent rise in unemployment that we've seen in the past 15 years. I think there were a number of needs that the government tried to address, and bringing down taxes was one of the important things; bringing down the budget deficit was another important thing. We can probably debate all day the speed with which both should have been addressed, but I think they were trying to address both at the same time.

The Chair: You have one minute left, Mr Christopherson.

Mr Christopherson: I would think that, given the lack of flexibility now, somebody should be saying, "Hey, we told you at the time that wasn't the way to go."

Two things and a short question: how many jobs, roughly, do you think we're going to see lost over, say, calendar 2001, and how many of those jobs are going to come back when the economy rebounds?

Mr Porter: I think it's important to point out that this base case forecast I laid out is not a recession. We actually see employment growth in Ontario this year. Admittedly-and again it goes back to the split personality-we're probably going to see fairly decent growth, still, in service employment but declines in manufacturing employment.

Mr Christopherson: But an increase in low-paying jobs and a decrease in decent-paying jobs.

Mr Porter: Not necessarily. Not all service sector jobs are low-paying. Management jobs, civil service jobs are not necessarily low-paying.

Mr Christopherson: There aren't many civil service jobs and there's only one management per X number of workers.

The Chair: With that, I have to bring it to an end. On behalf of the committee, thank you very much for your presentation this afternoon.

1500

POLICE ASSOCIATION OF ONTARIO

The Vice-Chair: Our next delegation is the Police Association of Ontario, president Bob Baltin, if you'd like to come forward. On behalf of the standing committee, welcome. We look forward to your presentation. When you start out, please state your names for the purpose of the record. You have a total of a half-hour for your presentation. What's left over will be divided evenly between the three caucuses.

Mr Bob Baltin: Good afternoon and thank you, Mr Chair and members of the committee, for the opportunity to be here this afternoon. My name is Bob Baltin. I'm the president of the Police Association of Ontario. I joined the Peel Regional Police Service as a constable in 1978. I've worked full-time for their association since 1995. I worked in uniform patrol, criminal investigations bureaus, intelligence units, morality and vice units, joint forces operations and the auto theft bureaus.

Appearing with me is Bruce Miller, the administrator of the Police Association of Ontario. Bruce was a 22-year veteran with the London Police Service until he became our administrator last December. He has worked in uniform patrol, vice, break-and-enter units and major crime squads. He is a former police medal of bravery recipient. Together we will try to give you the perspective of front-line police personnel in Ontario.

The Police Association of Ontario, the PAO, was founded in 1933. The PAO is the official voice and representative body for Ontario's front-line police personnel and provides representation, resource and support for Ontario's 70 municipal police associations. Our membership is comprised of approximately 13,000 police and civilian members of municipal police forces. The Police Association of Ontario promotes the mutual interests of Ontario's front-line municipal police personnel in order to uphold the honour of the police profession and elevate the standards of police services.

We are appearing before you today to ask that the government remain committed to community safety. People in Ontario have a right to feel safe in their homes, on their streets, while at play and in their schools. Safe communities create trust and comfort and attract investment and can only lead to a stronger Ontario.

We have applauded some of the legislative initiatives that the government has enacted in recent years. The 1,000 new police officers initiative was one of the most positive steps taken by a government that we have ever seen. The communities we serve have welcomed this influx of police personnel. We strongly supported the introduction of the Sergeant Rick McDonald act to help reduce criminal pursuits and make criminals accountable. We endorsed Christopher's Law, which created the mandatory sex registry.

We appreciate the fact that members of all parties have introduced legislation to help ensure safe communities and we would like to thank them for their efforts.

Stats Canada reported that Ontario had 185 police officers per 100,000 citizens last year. This compares favourably to the rest of the country, with Quebec having the highest number, at 188. However, our rates are considerably less than in other countries. The United States had 247 officers per 100,000 in 1998, and England and Wales recorded 233 per 100,000 last year.

Much has been made of the fact that crime rates may have been falling. The number of Criminal Code incidents in Canada increased steadily, from 20 per officer in 1961 to a peak of 51 in 1991. That rate had declined to 43 in 1999. However, Stats Canada also reported that a large proportion of crimes are going unreported because victims of crime did not feel they were significant enough to report to police.

A few years ago my own vehicle was broken into in my driveway, and approximately $700 damage was done and numerous items were stolen. I reported the theft to the police and discovered while talking with neighbours that in fact 11 vehicles had been broken into and damaged. These vehicles also had items stolen from them. I learned that I was the only one who had made a police report. The others did not bother because they felt the crime would either go unsolved or the culprits would be virtually unpunished.

It is noteworthy that during this alleged downturn of criminal activity, we commissioned Angus Reid to poll Ontarians in 1996. The following results were received:

-Three out of five Ontario residents, 62%, felt there had been an increase in crime in their community in the past five years.

-The large majority of Ontarians, 80%, felt that regardless of the deficit situation, one area that should not be cut back is funding for police services.

-More than half of property taxpayers, 54%, said they would be willing to pay an increase to maintain funding levels for police services.

A soon-to-be-released HRDC study on policing points out that crime rates have dropped because of an aging population. However, that same study states that the aging population will put increased demands on police personnel. Older Canadians are more frequently the victims of certain crimes and typically require more intensive personal attention than younger members of society.

The same study highlights the fact that crime is becoming more sophisticated, organized and technically complex. Criminals are using cutting-edge technology and the police are hard-pressed to keep pace. Criminal organizations do not face the budgetary restrictions that are faced by police agencies, which may prohibit or delay the acquisition of equipment or personnel.

Often, investigations into these matters are very time- and resource-consuming. We are playing catch-up to the criminal in many instances. Paperwork and regulations are increasing the workload of police personnel. Officers must ensure that all the statutory steps are covered. The Supreme Court of Canada decision that obligated crown attorneys to make full disclosure has become a paper nightmare for investigators.

Electronic surveillance has become a tool of last resort, as the evidentiary hurdles and criteria established by the charter and consequential legislation significantly limit the use of electronic surveillance well below its legitimate potential.

Search authorizations place comparable demands on police agencies, as a misplaced comma, typographical error or inadvertent and inconsequential technical error can render a search and the resulting evidence inadmissible.

In the past, police only had to prepare enough documentation to make the crown's case. Now they must prepare detailed reports and disclose all information. Many investigators spend the majority of their time preparing disclosure instead of investigating crime.

We want to stress that in spite of this the streets in Ontario remain comparably safe. This is due to the dedication of our members and due to the fact that government has recognized the need to give police personnel the tools they need.

The government gave up majority control on local police services boards to municipal councils. This has increased the need and responsibility to ensure that adequate funding and safeguards are in place to ensure quality policing. A local municipality cannot be allowed to make an uninformed decision that may impact on community safety.

Current funding levels must be maintained and in fact need to be increased in certain areas to continue to ensure safe communities. We would like to highlight certain areas that we feel are deserving of special attention.

Community policing partnership funding: In 1998 the province announced the implementation of the community policing partnership, or CPP. This extremely positive initiative allowed for 1,000 new officers to be added to patrol Ontario's streets. Last year the government announced that it would be establishing a permanent CPP program and increased the annual budget by $5 million, to $35 million.

It is our understanding that this additional funding has yet to be accessed. We urge that it should be targeted to continue the intent of the original program, adding additional police personnel and resources.

Fighting crime and ensuring safe communities requires many facets, including tougher legislation and education. Funding remains a key component and cannot be ignored. We would urge the government to ensure that this initiative continues and is not lost.

The Ontario Police College: The Ontario Police College (OPC) remains among the finest, if not the finest, police facility in North America. It has a dedicated and highly talented staff that is combined with quality leadership. The college received enhanced funding last year and the current funding levels must be continued.

The Ontario Police College provides a variety of training programs designed to prepare police personnel to perform their duties safely and professionally while meeting the policing needs of the province.

The primary clients of the OPC are police and civilian members of all police services in Ontario, including municipal and regional police services and the Ontario Provincial Police. Other clients include government employees from other provincial and municipal enforcement agencies and occasionally clients from other provinces and abroad. This fosters an environment for the valuable exchange of ideas and strategies to combat crime.

The college has 125 full-time and part-time employees, including instructors and support staff. The 45 permanent instructors are supplemented by police officers from various police services, usually for two-year periods. As of last year, there were 44 contract instructors.

Last year the college continued to be involved in the training of both recruits and seasoned police personnel. Approximately 5,000 members were trained on site while an additional 5,000 members received training from the college's staff in locations across the province.

The aging of the police population has placed increased demands on the college's staff. At the same time, an increasingly complicated and demanding work environment has reinforced the need for continuing education.

Police personnel must be adequately trained to meet today's challenges. The college's personnel have worked hard to ensure this, and their funding levels must be protected.

I will now ask Bruce Miller to continue with the rest of our presentation.

1510

Mr Bruce Miller: The policing services division is an area that is badly in need of enhanced funding. The division has an important audit and advisory capacity. Its mandate includes monitoring the extent to which ministry-sponsored police initiatives are introduced and maintained by police services; assessing police services compliance with the legislation, policies, operational guidelines and standards the ministry develops through both internal and external consultative processes; evaluating relationships between police services and governing authorities, police associations and agencies, local crown attorneys, adjacent municipal forces and other community groups; regularly advising chiefs of police, police services boards and police associations on policing procedures, regulations and standards, interpreting the Police Services Act and other legislation, and internal discipline matters.

The division has seen the number of advisers fall from a high of 15 in 1995 to the current five. This comes at a time when the advisers have the added responsibility of ensuring compliance with the adequacy standards that came into effect at the start of this year. The standards were legislated to help ensure quality policing for all Ontarians. They were enacted as a safeguard against local municipalities making budgetary decisions that could negatively impact community safety.

Their workload has also increased due to restructuring.

Ideally, they are supposed to be actively involved to ensure that protocols are followed and that all groups are kept informed and up to date. This sharing of information reduces the confusion and acrimony that can be associated with the process.

The policing services advisors played an important role by being independent. They were often able to resolve disputes involving associations, chiefs, senior police management and police services board. They did this through their educational and conciliation skills. The downsizing of their ranks coupled with their increased responsibilities has left them unable to carry out many of their functions. The last comprehensive audit of a police service was Durham region in 1998.

Far too often disputes which could have been settled with the aid of an adviser have ended up needlessly in a public forum. This not only serves to impact on the morale of the men and women of the service but can also diminish community confidence in the police service. This serves neither the community nor the service. We would ask that their funding and staffing levels be restored to, at the very least, their previous levels.

Organized crime: The widespread proliferation of organized crime in Canadian communities is of significant concern to the Police Association of Ontario and our members. As professionals who dedicate their lives to community safety and reduction of crime, our members are acutely aware of the impact of the thriving multibillion-dollar industry known as organized crime. Organized crime affects all Canadians, undermines our economy, reduces our security and threatens the integrity of our political institutions.

The explosive growth of technology in our increasingly global society has presented new opportunities for organized criminals through technological crime, distribution of child pornography, international telemarketing fraud and offshore gambling.

The United Nations has estimated that organized crime has global revenues of $1 trillion annually. The activity and criminality of organized criminal gangs has increased in recent years within Canada, at severe risk to public safety and security. Criminal Intelligence Services Canada, CISC, has stated, "Virtually every major criminal group in the world is active in this country."

Our proximity to the United States of America makes Canada extremely vulnerable. More importantly, it is our lax immigration policy, open borders, weak federal laws, archaic justice system, an even weaker federal corrections system, coupled with under-enforcement that makes us extremely attractive to the sophisticated criminal.

There are disturbing and significant trends evolving in organized crime in this country: increased violence, including bombings, murders and the use of threats, intimidation and violence against victims, witnesses, public officials and the media; collaboration-the sophisticated criminal has recognized that co-operation breeds success, as evidenced by the recent summit of Hell's Angels and Rock Machine leaders; globalization of operations; exploiting technology; the import and export of contraband, including but not limited to illegal aliens, stolen vehicles, drugs, alcohol and tobacco and money laundering.

According to CISC director Richard Phillipe, over a 24-hour period in Canada $6 million worth of heroin will be imported into this country, 21 to 43 illegal aliens will arrive, $14 million will be obtained through telefraud and 500 vehicles will be stolen.

Organized crime is far from victimless. In addition to the traditional forms of violence associated with the organized criminal, their illegal activities damage and often destroy the lives of children and vulnerable persons who fall prey to their illicit trade. The child prostitute, the drug addict, the addicted gambler and the senior defrauded of their life savings are all-too-familiar examples. There is a tremendous economic drain on our economy as businesses and insurance companies pass on the significant costs of fraud and theft to consumers. Our members have the desire to combat this menace, but they need the tools and resources.

Much has been said about the recent increase in activity of organized criminal motorcycle gangs. We watched in horror at the carnage that occurred in Quebec, and we must ensure that the same thing does not happen in Ontario. This can only be accomplished with adequate tools and resources.

Recently, a disturbing trend has developed. Police officers themselves have been targeted by organized crime. One can only surmise that the goal of these intimidation tactics is to silence the efforts of these officers and their co-workers. We cannot and will not allow this to happen. Police personnel in Ontario will not bow to organized crime.

We support the Remedies for Organized Crime and Other Unlawful Activities Act. However, proper resources and funding must be in place to ensure its success. Training is a necessary component. The promised provincial strike force needs to become a reality for the legislation to be effective. The appropriate tools must be in place.

The Ontario Crime Control Commission has done important work in developing strategies to combat property crime and as of late has been targeting auto theft. The commission has had a significant role in the sharing of ideas and strategies. It has helped to educate both the public and police personnel. We understand that its current mandate is set to expire in June. It has played an important role and we would urge that at the very least its mandate be extended.

We have spoken at length about how combating crime has become increasingly complex and sophisticated. It is a time- and resource-consuming task. At times, the dedication and courage of our officers is not sufficient; specialists are needed. We support the creation of provincial specialty task forces to assist in the fight in such areas as organized crime, Internet child pornography and computer crime.

The so-called ROPE squads that hunt down prison escapees and parole violators have proven to be very effective but are badly in need of a cash infusion.

Drinking and driving continues to be a major source of tragedy on Ontario's roads, and funding for RIDE programs and enhanced enforcement must be continued.

Initiatives that have been either created or promised need to be continued or carried through with. In some areas, these initiatives will have to be expanded.

Policing impacts on all areas of Ontario, urban and rural. The citizens of Ontario have a right to feel safe in their homes, to feel safe at work, to feel safe at school and at play. We believe that our members have the overwhelming support of Ontarians. We know that we have the support of the government and members from all parties. We would like to take this opportunity to thank all members of government for the law-and-order initiatives that have either been promised or legislated. We appreciate your commitment to law-and-order issues. We would urge you to continue to consult with us, as our members are out there on the front line, in the real world.

Through the dedication of our police personnel, combined with adequate tools and resources, we have been able to ensure that our streets are safe. To ensure that this continues, current and proposed funding must be left in place. At the same time, new initiatives must be continually explored to ensure our province's quality of life.

I would like to take this opportunity to thank the committee for allowing us to address you, and we would be prepared to answer any questions you may have.

The Vice-Chair: Thank you very much for your most interesting report. We have maybe two minutes per caucus, max.

1520

Mr Kwinter: Thank you very much for your presentation. I think you're absolutely right that Ontarians have a right to expect to have safety in their streets, safety in their homes, safety in their schools, safety in their play, and I think by and large they do. I think that if you ask the average Ontarian, they would think this is a safe place to live, relatively speaking. Having said that, there are these areas where there are problems, and I commend the cop on the street, because he's under incredible pressure to do his job properly.

I'd just like you in the time that we have to explain one thing that you say in here. You say, "The government gave up majority control on local police services boards to municipal councils. This has increased the need and responsibility to ensure that adequate funding and safeguards are in place to ensure quality policing. A local municipality cannot be allowed to make an uninformed decision that may impact on community safety."

How do you propose that we address that? The city of Toronto, to give you an example, because we're in Toronto, has responsibility for the police service. The police service reports to the council. They make decisions; they make funding decisions. What would you propose to make sure that they make, in your opinion, the right decisions?

Mr Miller: I think, sir, that's already been legislated in the form of the adequacy standards. They were put in place to ensure that Ontarians have quality policing right across the province. I don't like to refer to them as "minimum" standards, because minimum standards sometimes become the acceptable standards. The standards are adequate to ensure that the community is properly policed. The other area, of course, is with the expansion of the policing services division to provide support and resources for police services boards.

Mr Kwinter: So you're happy with it. You just want to make sure it stays.

Mr Miller: There are problems in certain communities, but by and large, Ontario's streets are relatively safe.

Mr Christopherson: Thank you. It's good to be working with the PAO again. I'll just comment on a couple of things-we don't have much time-and any response that you want to give would be appreciated.

I notice that you make reference to the fact that the government did follow through with what it said it would do-unfortunately, in this case-where they downloaded decision-making responsibility, majority control, on the police services boards down to the municipalities, thereby leaving it very vulnerable. Even though there are these adequacy standards, when you link it with the lack of advisers and the whole process, if it's still the same as it was when I was there, or even close, that takes some time and can get quite bogged down. It seemed to me it was a good check and balance in our system that the majority appointees to police services boards were by the province, where ultimate responsibility for policing services lies. So it's good that you mentioned it. I still think that was a mistake the government made, and maybe that needs to be revisited some day.

Again, to mention the fact that they've lessened the number of advisers from 15 to five, I know first-hand the role they play and how crucial they can be to solving big problems and also solving small ones to prevent them from becoming big ones. I think what you are seeing here is yourself being a victim of some of the other kind of quiet cuts the government makes, where they don't get a lot of headlines. In the Ministry of the Environment, for instance, a lot of the scientists are gone, a lot of the analysts, things that the public can't see but that are important to the effective protection of the environment, in this case, or the effective provision of policing services.

I would also just mention you complimented the community policing partnership funding. I didn't make too huge a deal out of it at the time. It seemed rather pointless; the election had decided things. But I thought it's interesting that it's almost the same program that we had brought in and that the government cancelled and then reannounced a couple of years later with great fanfare. I see one of my friends from across the way who remembers those years, who knows very well that's what happened. It is a good idea no matter who is doing it. If you can work in partnership with the local municipalities, where you're both bringing in money for the same objective, I think that's the best kind of partnership you can have.

Mrs Molinari: Just quickly and then my colleague also wants to ask some questions. Just a comment on the organized crime that you've indicated here. Presently we're holding hearings on Bill 155, the organized crime bill. If you haven't submitted your views on that, I would suggest that would be a good idea for you to do. It's certainly a bill that's going to protect Ontario residents from being victimized by organized crime. So I'd encourage you to become involved in that.

A quick question about your comments on the reports to the police on stolen and damaged property and that you had spoken to about 11 people in your neighbourhood and none of them had reported it. One of the reasons you cited here is they didn't bother because they felt it would either go unresolved or the culprits wouldn't be punished. That's a rather apathetic approach to crime and I'm concerned when people have that type of view, that they don't report it. It's my understanding that in order to claim it on your insurance, you have to have a police report, so it surprises me that even with the apathy, that they feel nothing is going to happen, they wouldn't report it just so they'd have a police report and be able to claim it through the insurance. Can you comment on that, please?

Mr Baltin: I think I can because it was a personal experience dealing with my neighbours. I was very disheartened as well that they hadn't contacted the police, because from a policing aspect, if the police were to do a snapshot of the area for that day, they would only know of one crime being committed. Had everyone reported it, they would have known that there in fact had been 11 or 12 or possibly even more that I didn't learn about.

As to why they didn't report, you're right: in order to claim on the insurance, they would have to make a police report. However, what I found was that for a number of them, depending on the value of the items that were stolen, if it was going to fall beneath their comprehensive level-and the level of the comprehensive for theft has increased over the last few years-again, there was going to be no financial benefit to them to report it. Essentially, they just took the loss.

The Vice-Chair: On behalf of the committee, thank you for your presentation. We really appreciate your coming forward. Best of luck in your work.

ASSOCIATION OF ONTARIO HEALTH CENTRES

The Vice-Chair: Our next delegation is the Association of Ontario Health Centres, if the representatives would like to come forward at this time. On behalf of the committee, thank you very much for taking time to express your interest in the upcoming budget. You have half an hour to give your presentation, and what's left over we'll divide between the three caucuses. Please state your name at the beginning for the record purposes.

Mr Gary O'Connor: My name is Gary O'Connor and I am the executive director of the Association of Ontario Health Centres. I've held this position since 1997. Beside me is Susan Milankov, who is the vice-president of the Association of Ontario Health Centres, and she is also on the board of one of the community health centres in Toronto, the LAMP community health centre.

We are deeply appreciative of being able to address this important committee of the Legislature. We are grateful for the time you have allocated to us and our association. At the risk of being a bit immodest, I can assure you it will not be time wasted.

I do want to explain more about the association, but first I want to explain why we're here today. The Association of Ontario Health Centres has come to Queen's Park today because we genuinely believe we have a solution to offer the government that will make significant improvements to the province's health care system. Given the amount of money the government has poured back into health care, we know that this is your number one area of interest. I praise the government for the continued interest in health care. It's money well spent.

I think we have an offer that the government should not, and cannot, refuse. Simply put, the government should continue to invest in health care, and we think community health centres are a natural and worthy candidate for investment. By investing here, the government will improve the province's health system and begin to deliver in a significant way on its commitments to expand primary health care networks province-wide.

Members of our association have been at the forefront of primary health care reform for the past 30 years. As a result, we wholeheartedly support the government's commitment to roll out primary health care reform province-wide. In last year's budget, the government committed to having 80% of family physicians working in primary care networks over the next four years. Again, we applaud both the impulse and the target.

We think we can assist the government in accomplishing this important and ambitious objective. In fact, today we want to leave the committee with a set of proposals, which have been delivered to each of you, that move the yardstick on primary health care reform a considerable distance.

1530

Who are we? Ontario's health centres are now into their fourth decade of delivering comprehensive health services to people in their communities. It was not until 1982 that our association, the Association of Ontario Health Centres, was officially incorporated. At that time, the then Minister of Health, the late Larry Grossman, said that CHCs would no longer be experimental pilot projects, but would be part of mainstream health services in the province. Minister Grossman also set targets for growth and expansion of community health centres across the province. His government's direction was supported by subsequent governments of all political stripes.

Today, there are 66 centres in operation in all parts of the province; 56 are community health centres, and 10 centres provide services as aboriginal health access centres. These centres are community-based, not-for-profit organizations that provide high-quality, cost-effective primary care services. But our centres do not stop there. They also focus on health promotion and illness prevention to improve the overall health outcomes for individuals, families and the communities they serve.

What we're here talking about today, what we have to offer, is that the Association of Ontario Health Centres applauds the direction that the government has moved toward in managing the health care system. We support the call for expanded primary health care networks across the province. We also think we are a legitimate alternative to assist the government in achieving this worthwhile objective.

We support the idea of shifting health resources to communities to deliver services closer to home. Spearheaded by local need and governed by local boards, health centres are quintessentially creatures of their communities.

We fully embrace the course the government and all the governments in fact are starting to take of putting money back into the health care system. Health care is our number one priority and a top issue for the majority of people all across the province. In its 2000-01 business plan, the Ministry of Health and Long-Term Care described its vision for Ontario's health system as the following, "An accessible health system that promotes wellness and improves people's health at every stage of their lives and as close to their homes as possible." This vision fits nicely with our approach. In fact, it could almost be the vision for community health centres. Our approach stresses comprehensive care close to home with an emphasis on making people well and caring for them before they become ill.

Looking further at the ministry's business plan, it identifies seven strategies to achieve its vision: (1) anticipate the needs of a growing and aging population; (2) expand health promotion and illness prevention activities; (3) plan for enough health professionals throughout Ontario; (4) enhance the role of community-based health services; (5) convert 80% of eligible family physicians from a strict fee-for-service payment scheme; (6) increase recruitment, retention and nursing leadership; (7) ensure that rural and northern communities have better access to health services and specialists.

What the ministry has identified in its business plan to achieve a better health system is what community health centres do every day. Seniors report preferring the health centre model of care because it allows them to see the most appropriate provider, who then gives them the service they the need and the time they need.

The health centre model is structured on a multidisciplinary team concept that places a significant emphasis upon illness prevention and health promotion. Our providers are salaried and our budget is capped. This means the number one goal is to make the individual as healthy and as well as possible.

Our association has a plan that would see the hiring of 375 more physicians and 548 more nurses. This would deliver comprehensive primary health services to as many as 65 more communities that currently need enhancements to their local primary care systems.

Community health centres are just that: they're community centres. They arise out of local need and are formed and forged by local interests. They're managed and overseen by local people. When the ministry says its strategy is to enhance community-based services, it is talking, or at least should be talking, directly about community health centres.

The Ministry of Health and Long-Term Care wants to convert 80% of eligible family physicians from the fee-for-service payment model. This is a laudable goal. All of our physicians are salaried. So we agree and we think the ministry should expand community health centres to support this strategy.

The ministry wants to increase recruitment, retention and nursing leadership in our health service. One way to do this is to expand the number of community health centres to provide nurses with the opportunity to work in a team environment, under which they thrive. In particular, nurse practitioners enjoy the CHC environment because it is one of the few places where they can practise to their full scope of training.

One of the key ministry strategies to improve the health care system is to ensure that rural and northern communities have better access to health services. Once again, we agree. Community health centres are all about delivering health services to people and to communities that have not had the same access to services as other communities.

Any way you slice it, what the ministry says it wants to achieve in its business plan can be achieved by investing in and expanding community health centres.

In an effort to assist the government to expand primary health care reform and plug some of the gaps in underserviced areas, the Association of Ontario Health Centres has a set of proposals we would like to share with the committee. In October we submitted the business case that you have in front of you, and two weeks ago we submitted phase 1 of this proposal to the Minister of Health. But, in fairness, there has been a change at the helm in the ministry, and we realize it's going to take a little more time for phase 1 to be reviewed.

We would like to see our proposal funded in stages over the next three years, although the committee should understand that the large proposal presented in October, the process for bringing health centres up to their full operational capacity, can take as many as three years. So the full funding maturity of this proposal is more in the neighbourhood of six years, which means spreading the funding over six years as opposed to three.

Our proposal calls for doubling the number of health centres around the province. This would necessitate adding 65 new health centres in key areas of the province that have identified a need for better basic primary health care and wellness services. I don't think anyone disputes the fact that more and more communities across the province are finding it difficult to maintain their current level of physician services.

Another aspect of our proposal deals with expanding existing health centres so they can better meet the increasing demands and acuity levels needed to maintain quality care. We think the expansion process should be evaluated in year 3 to assess its success and determine whether additional communities could benefit from expansion.

We think the government should move immediately to fund phase 1 of our proposal, which calls for immediate expansion into 13 new communities. In all, 10 new health centres and three new satellite centres would be created, at a cost of $21.5 million.

We also think it's necessary for the ministry to inject $15 million into existing centres so they can better serve their communities and better meet the government's health care priorities. One third of this money would be used to address recruitment and retention issues in CHCs. The committee should know that staff in CHCs have not had a salary increase now in almost nine years. Many of our positions are now paid greater than 25% below market norms, causing tremendous recruitment and retention problems. Some $6.5 million of the $15 million would go toward hiring more health professionals: 25 more nurse practitioners and 10 more physicians. The remaining portion of the $15 million will enhance vital health promotion programs that CHCs deliver.

We think this is money well spent, because it will help existing health centres meet some of the most significant cost and program pressures they face. Keeping our community health centres functional is crucial to helping to sustain and improve the provincial system, because we provide service to populations and to areas of the province that, quite frankly, many providers do not wish to service or are incapable of servicing.

The communities that we have identified for immediate expansion include Elliot Lake, Goulbourne-Kanata, Kapuskasing, North Bay, Nepean-North Innisfil, Pickering, Scarborough, South Essex, Sudbury East, Tilbury, Whitewater-Bromley and Zurich. These communities can't wait for the comprehensive services provided by community health centres. We also don't think these communities should have to wait for the ministry to complete its strategic review of community health centres. This review is not slated to be completed and responded to until the spring or summer of this year. We think it is too long to wait to expand a service that is both proven and desired by communities and population groups around the province.

1540

We are satisfied to wait for the review in the context of our full expansion proposal to 65 communities, but we do not feel the existing health centres or the 13 new communities should wait. We also don't think it serves the government's best interests to make them wait, especially given the current climate of communities competing against one another for scarce health professionals to provide for their basic health services.

I don't think I am going too far out on a limb to suppose that some of the more frustrating calls each of the committee members and other MPPs take from constituents centre around constituents expressing their dissatisfaction and frustration at not being able to access better health services. Our plan takes a big step to ending these phone calls to each of you.

Basically we're saying, "Let us help you." We might be a little biased, but we think our proposal can provide a huge assist to the government in managing the health system and to patients who are trying to gain better care and better access within the system.

How exactly is this achieved? Take hospital emergency rooms-and I guess in the government today you would say, "Please." People go to emergency rooms not because they necessarily want to but because they have no other alternative. Either they cannot gain access to their family doctor or it's after hours and the doctor's clinic is closed. By funding our proposal, community health centres will be in a position to provide 24-hour access, seven days a week. This makes us a natural safety valve and a natural alternative for hospital emergency room visits, which should improve both the patient flow in ERs and make sure hospital capacity is maintained for true emergencies.

We also think our wellness approach encourages people to take better care of themselves, which in turn may prevent illness and result in fewer emergency room visits. We were certainly delighted to see the government expand the flu immunization program. In fact, CHCs hosted a number of community vaccination clinics. We think there are other health promotion initiatives that should be looked at further, many of which could be delivered by our centres. We believe the government should build its prevention strategies using existing prevention agencies such as CHCs and boards of health. There is no need to create new silos when organizations exist that already work in collaboration with many community partners.

I firmly believe that the best emergency room reform strategy has health promotion initiatives at the forefront. As I have alluded to earlier, we also think we have a great deal to offer in helping the government to meet its primary health care reform objectives.

The government is quite correct in wanting to expand primary health care networks across the province. However, we think it is wrong to expect one size or one model to fit all populations.

We think the community health centre model has an important role to play and should not simply be shoved aside while the government and the Ontario Medical Association negotiate networks around the province. We have a proven, cost-effective, measurable model that treats all of the individual's primary health care needs. We can also serve hard-to-reach populations that can potentially drain hospital resources if care is not provided ahead of time or on time.

When one compares the Ontario government's own primary health care objectives with the services currently offered by health centres, it is clear that health centres are an efficient way to achieve the government's goals.

On pages 9 and 10 of this document, you can see how closely aligned primary health care reform goals and community health centre services are. Some key points from those pages are as follows:

CHCs are leaders in coordination of patient care through integrated teams of health professionals and through the broad basket of services we offer.

We offer 24-hour access to care.

CHCs provide ongoing illness prevention and health promotion education and support to clients. The philosophy, objectives and approaches inherent in community-based health delivery-which are a broad understanding of health and its determinants, an interdisciplinary team approach and a focus on promotion, prevention and early intervention-all help to promote preventative care.

Health centres have established an information evaluation network consistent with the provincial government's requirements.

Our information networks provide outcome measures as well as ensuring accountability on how many primary health care services are being delivered by health centres.

CHCs already work in concert with other health organizations-specifically to name a few, hospitals, community care access centres and public health units-to secure a continuum of care for our patients.

Forty percent of our current complement of CHCs are already established in northern, rural or underserviced communities, communities the government has identified as having high needs. Over eighty percent of communities want a CHC to come from these targets as well. If allowed to expand, we can further cut into the underserviced-area disparity around the province.

Health providers come to work at CHCs because of the support they receive through interdisciplinary teams. Also, CHCs are currently the only settings in Ontario where nurse practitioners can easily work to the full scope of their training.

We currently register patients in our health centres. Our health centres all have service agreements with the Ministry of Health and Long-Term Care. We are accountable to a volunteer board of directors. As well, through Building Healthier Organizations, our quality assurance and accreditation program, health centres are consistently striving to improve on effectiveness.

Our centres currently conduct ongoing assessments and evaluations of the services they deliver. Patients are generally quite satisfied with the services they receive.

We have no doubt we fit the ministry's requirements and objectives for primary health care reform and we know the ministry has set aside money to implement these reforms. What we are asking for today is to be considered as a viable option for primary health care reform expansion. In other words, help us to help you.

At the risk of again sounding immodest, we believe we are the best weapon for the government in fighting the following health battles.

Underserviced areas: twenty-seven, that is 40%, of our centres are in needy areas and our phase 1 proposal seeks to eliminate service gaps in 13 key areas of the province.

Wellness: our philosophy and approach is all about making people well so they don't need to rely strictly upon a treatment regime. We know it's a priority for the government, and we think we are an effective service strategy to achieve this goal.

Emergency rooms, primary health care reform, underserviced areas and wellness are four areas the government knows it needs to get better results in if it is to make a dent in improving the province's health care system. In all four of these areas we have a proven and successful record. So today, we ask the committee to help us impress upon the ministry the need to back a winner.

In summary, members of the Association of Ontario Health Centres are in their fourth decade of providing high-quality, comprehensive primary health services to high-needs groups and communities. Our centres feature a multidisciplinary team approach. Our centres provide 24-hour access to coordinated services. Our centre model is built on a broad understanding of the determinants of health. All providers promote illness prevention and health promotion.

Our centres have invested heavily in information technology and we can measure what it is we do and what we achieve. Our centres have a high level of patient satisfaction. Seniors particularly enjoy the CHC experience. Our centres are community-based and reflect the health and service needs of their communities.

Our centres are accountable. We enter into service agreements with the ministry. We are governed and managed by local people and we submit to outside review through the BHO accreditation program.

What we hope to accomplish today is to re-establish our presence and worth in today's health care system and to state very clearly that the key health directions the government has identified as priorities are areas in which we have a proven track record of accomplishment.

We understand the government has made primary health care reform expansion commitments with the Ontario Medical Association, but we hope the government would keep an open mind on other models that can help the government achieve its objective. We are one such model that can meet these objectives, but we also meet other objectives, like wellness and service.

The health care needs in many communities of this province should not be put on hold and made to wait while the government and the OMA figure how best to implement primary health care reform. We have a service model that works in these communities.

We understand the committee cannot endorse our 65-centre, comprehensive expansion plan until more details are known about the government's primary health care reform expansion plans. Yet we think our phase 1 proposal is important for the health system today to begin rolling back the gaps in services that have popped up through several Ontario communities.

We are proven, we have a plan, and we hope you will see the merits in our plan. Thank you very much.

1550

The Chair: Thank you very much. We have a very tight two minutes per caucus.

Mr Christopherson: I'll probably spend most of my time, then, bragging about the North End community health centre in my riding in Hamilton, just a fantastic centre. It provides an excellent service in an area that has some challenges, and it goes beyond that, if I might, not just in the health provision, although I will come to that in a moment because it's obviously most important, but over the years-they're almost like a schoolyard, a school property. They've become a focal centre for the community and there are a number of community services that are provided in the area that tend to be based there either on a permanent basis or ad hoc. They often hold special events. Sometimes it's a simple thing, like in the summer they have a barbecue for all the kids and the families in the neighbourhood.

They're great because they can deal with all kinds of different languages. We have a lot of diversity down in the north end of Hamilton. I can't say enough about the health service they provide and the asset and the contribution they make to the immediate community they're in. I'd give my right arm to have a bunch more to put throughout my riding.

In that vein, I wonder if you could tell me what your experience is in terms of attracting doctors to work in the centres. I know you mentioned the 25% gap, but almost as a philosophical work approach, do you find a lot of doctors are open to it, many refuse to even consider it, some are open-minded? What is the general reaction of the docs, especially those just graduating who are looking at a lifetime career in the medical field?

Mr O'Connor: I'll answer that question in two ways. First of all, the Ontario College of Family Physicians did a survey about a year and a half ago and they found in that survey that 50% of primary care practitioners in Ontario would be willing to work on salary; 98% of primary care practitioners wanted to get off the fee-for-service system. There is a broad base of physicians who are willing to look at the kind of model we service.

By and large we have the same difficulties recruiting physicians as other parts of the health care system. But when you compare, for instance, in Ignace, the Mary Bergland Community Health Centre in an isolated community in northern Ontario has an easier time recruiting physicians for its multidisciplinary team than a general practice trying to sell its practice in the community. By and large, young physicians don't want to come in and be everything from the emergency room physician to the psychologist, seven days a week, 24 hours a day. They want to work in a team. They want to have backups and they want the ability to have a realistic life, which they can in community health centres.

Mr Christopherson: Thanks. Keep up the good work.

The Chair: The government side?

Mr O'Toole: Out of respect, I think it's important to compliment your input and working with the Ministry of Health. I'm not really up to speed except I'm familiar with other presentations by the health centres.

When Wendy Graham was doing the primary care reform review, I know this was considered and I was surprised they didn't move that model forward then. I know there is discussion and debate with the OMA and the OHA as to who is the caretaker of the system. It's kind of a power thing, actually. But I know the government is looking at a model. It's not really rostering, it's not really capitation, and this sort of sounds as if it fits.

The question is, what kind of feedback are you getting from the ministry? Is that resistance or is it political will? What's missing? If you have a model, it's accountable as you say, and it works, what's the problem?

Mr O'Connor: By the way, the Ontario Hospital Association endorses our expansion proposal and says it's something that is critically needed in the province. The Ontario Medical Association supports community health centres for high-needs, high-risk populations. It avoids endorsing community health centres generally. There are concerns within the Ontario Medical Association about endorsing a model that puts physicians on salary. But, that said, I've had many conversations with people in the Ontario Medical Association who support individual community health centres for individual communities that they know there are needs in.

Mr O'Toole: If I could just interrupt there, I want to clarify-

The Chair: I'm sorry. We've run out of time, Mr O'Toole.

Mr O'Toole: -is this more money, additional dollars, or where does the money come from? The $1 million.

Mr O'Connor: It could easily come from the OHIP pot.

The Chair: Thank you very much.

Mr Kwinter: In theory this system sounds interesting. I have some concerns. I think that if you can get one established in a high-need area, fabulous, because they don't have anything now. If you can get this interdisciplinary team up there, that would be fabulous. But I have some very serious concerns. Number one: I sit on the board of a hospital and we can't get anybody to staff the emergency department at night-and this is Toronto-no matter what you pay. You just can't get them. You have to close it down. When you get the association of family physicians doing surveys saying 54%, or whatever the number is, of our members would rather have a salary than a fee for service, it doesn't ask the question, "At what salary?" Sure, they would love to have that, because if it's fee for service, they've got to go out and see as many patients as they can. If you give them a salary and say, "You're going to work from nine to five and we're going to pay you $250,000 a year," they say, "Great. Where do I sign?"

That's the issue. The issue is, if there is a doctor shortage now, how do you get these doctors to buy into this unless you're going to really make it attractive for them? If you make it attractive enough for them, you may get them, but I don't know how that's going to work. At the present time there are incentives by-I'm thinking of communities in the north and other areas. They offer them houses, they offer them all kinds of things and they still can't get them.

So my concern is in the implementation. I think in theory it's great. We haven't got enough time, but I understand that you've designated Scarborough as an area. I don't think Scarborough is an underserviced area, but I'd love to find out how Scarborough was targeted.

Mr O'Connor: OK, quickly: the community health centre's physicians and nurse practitioners provide care 24 hours a day. That's offered by extended hours, evening and weekend hours, through clinics and through telephone backup, where someone calls in and gets referred to a physician or a nurse practitioner. We have no difficulty doing that. Virtually every community health centre provides that service.

In Scarborough, the target is for new immigrants and mental health survivors. There is a tremendous and growing need in Scarborough for that.

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

1600

CANADIAN FEDERATION OF INDEPENDENT BUSINESS

The Chair: Our next presentation is from the Canadian Federation of Independent Business. I would ask the presenters to come forward and state your names for the record. On behalf of the committee, welcome.

Ms Judith Andrew: I'm Judith Andrew, vice-president, Ontario, with the Canadian Federation of Independent Business. I'm joined by my colleagues Brien Gray, who is CFIB senior vice-president, and Melanie Currie, who is our Ontario policy analyst.

You should have an envelope with our kit before you. I'd like to briefly summarize our brief. In the course of that, I'll lead you through some of the other items that are in the kit and leave ample time for questions at the end.

On behalf of CFIB's 40,000 Ontario small and medium-sized business members, we appreciate the opportunity to make submissions to the Ontario government in respect of the forthcoming Ontario budget. As Catherine Swift summarized in her appearance here before you about a week ago, it's heartening that the signs from our sector, the small and medium-sized business sector, are that high expectations continue to hold for business. Our members are forecasting a strong 5.3% growth in full-time-equivalent employment. We're able to track this on a weekly basis through annual personal interviews with each of our members at their business premise. Through this grassroots leading indicator, the positive forecasts generally hold up and things look very good for 2001.

Just to summarize the small and medium-sized business Ontario priorities for action, which you'll find on figure 1 of the brief, the perennial number one issue for business is total tax burden. In this we also include hidden fees, which are part of the tax burden. The next most important issue for business is government deficit and debt, since this represents tomorrow's taxes. The third-ranked item, employment insurance, while not directly within the Ontario government purview, is a profit-insensitive tax that's important, as too is the workers' compensation premium, which ranks high, and should be matters of provincial interest for their economic activity.

Regulation and paper burden is still a highly ranked concern. I know that some of the committee members around the table have had involvement with the Red Tape Commission. This 61% ranking in terms of red tape being a priority for action does justify a more concerted effort on the part of the Red Tape Commission in terms of tackling regulatory and paper burden concerns, including in the tax arena.

The cost of local government is high. It's a proxy for the tax load. I will talk about property tax in a few minutes.

A shortage of qualified labour has emerged as a serious barrier to small and medium-sized business in Ontario. Just today, we've released our new February 2001 research report, entitled Help Wanted: Results of CFIB Surveys on Shortage of Qualified Labour. You will find that full report in the left side of your kit. It's a national study. The breakouts for the province of Ontario are contained on a single page which shows the growth of the problem to the point now where business concern over shortage of qualified labour in Ontario has reached over half of our members, 50.8%.

Within the Ontario data, the sectoral breakdown is very interesting. The construction sector has the highest ranking in terms of business concern over the shortages, followed by manufacturing, transportation and communications, and so on. Based on these broad-based data from our members, we estimate that unfilled jobs in the small business sector in Ontario are roughly one in 20-5.3%-of jobs going unfilled here in the province.

There are some breakouts on the back page dealing with the types of occupations that Ontario small businesses hire, where they're finding the most difficulty in terms of finding employees with certain levels of education, and the important skills and qualities they look for in employees. I think it's also fascinating and very worrisome that Ontario heads the list in terms of provinces where small businesses are saying long-term growth is being harmed by this issue.

The full report contains a number of recommendations in this area. Our finding is that the causes are many and the solutions, of course, will be varied as well. There are quite a lot of solutions that we're proposing, including everything from looking at the immigration system to looking at barriers to market entry and mobility and such things as payroll taxes and better communication with the education system at all levels by business and, indeed, a more concerted effort by workers to assume a more active role in job search. Finally, we do argue for building private technical and vocational schools right into the education system in a more meaningful manner so that people can plan that particular educational choice among the others that are available.

Continuing with some of the new findings that we have from our members, figure 2 in the Ontario budget brief shows a rating of the Ontario government by small and medium-sized business on a range of factors. The Ontario government received the most positive ratings on things like setting an environment for growth and controlling government spending. At the other end of the spectrum there were poorer ratings associated with things like consultation with the public, understanding of entrepreneurship and social policy, and even taxation policy. So on that latter one there's very definitely a message coming from small business that more needs to be done on the taxation policy front.

I think the fact that Ontario got strong ratings in terms of provincial control of government spending is borne out in the kind of support we see in our surveys for other provincial spending initiatives. In figure 3 you will see that our members are supporting increased spending in health care infrastructure, highways, and science and technology. By contrast, our members prefer to hold the line on infrastructure spending for education facilities.

Looking at the most harmful taxes to business, and this is drawn from our Focus on Ontario surveys for the years 1995, 1999 and 2000, the largest improvements are evident in the employer health tax and on Workplace Safety and Insurance Board premiums. Credit is certainly due on both counts. Certainly the EHT $400,000 threshold was a very important positive measure, appreciated by business. It's also heartening to see the WSIB premiums going down, although there are still some pretty big challenges there with a remaining $6-billion unfunded liability and some pretty large financial items on the docket for this year.

The greatest deterioration in this rating of harmful taxes shows with respect to gasoline and diesel fuel taxes, not surprisingly.

Also, it's interesting and instructive to see that retail sales tax has increased as a concern for nearly one third of members, up from about 20%, I believe. Of course, retail sales tax adds to business input costs. Administering this separate tax is duplicative and sometimes difficult, and there is all sorts of jeopardy in dealing with the tax administration authorities.

Personal income tax is showing as having diminished concerns. I think that's a sign that Ontario's PIT relief is starting to be felt. We certainly commend Ontario's leadership on capital gains treatment. Reducing the inclusion rate to 50% is a very positive item. Our members have long opposed a separate personal income tax and would seriously be concerned and resist any deviation on the income definition that would result in that outcome.

Our members also appreciate and support the 2000 Ontario budget measure to increase the threshold for small business corporate income tax, as well as to reduce the rates. That's a very positive one. It has yet to show up in the survey, but I think as it is phased in, the results will show in the survey.

1610

Of course, I don't think it's surprising to anyone at this table that the most harmful tax identified by our members is property tax. About 60% of CFIB members say that this is a very critical tax for them. They've certainly been voicing their concerns to the Ontario government directly through our action faxes, as well as to municipal governments, and samples of both of those faxes are in your kit.

Last summer, CFIB painstakingly gathered property tax data from 25 municipalities, which we released in an October 2000 study entitled Property Tax Overdraft. That study is in your kit. We have subsequently extended that study to cover 70 municipalities, and all of those municipalities' findings are available on our municipal Web site at cfib.ca. You will see in your kit a page that shows the geography plus all of the various communities that can be accessed in terms of that property tax study data.

I guess what was most disheartening about the study is that after three years of property tax reform, we found that little had changed. Commercial properties are still charged two to three times the taxes that a same-value residence pays. Industrials pay three to six times the taxes. It is very positive that Bill 140 took the first modest step in the right direction on the municipal portion. We certainly encourage that hard-cap approach, basically protecting businesses from increases until municipalities reach a certain fairness threshold that will start to rebalance the system.

On the education portion, the Ontario government now controls more than half of the property taxes levied on business, some $3.5 billion. We're recommending that more relief be delivered on this portion as a means to recession-proof the most vulnerable players in the Ontario economy. The 1998 phase-in of $500 million of business education tax relief was a start in the right direction. We believe those tax reductions need to be felt in many more communities, in larger measure, and more quickly. We argue for reducing Ontario's average 3.3% business education tax rate, which is in fact eight times the residential rate, down to something like 2%. This would begin to move Ontario into the competitive range with other Canadian jurisdictions.

We're also in the midst of conducting a survey on our members' problems with property valuation methodology and on their dealings with the Ontario Property Assessment Corp, the results of which we are planning to bring to bear on Mr Beaubien's review and as well share, as always, with the policy-makers. The survey that we have in the field on that particular issue is on the back side of the municipal action fax.

I'd like to say a few words on another topic, the perennial problem of small business access to capital. The roughly one third of CFIB members complaining about availability of financing remains stubbornly high. This means that growth has been significantly constrained for this segment of the economy. A financing gap exists at the low end of the small business range, which we believe could be assisted by a straightforward capital gains incentive. We're not calling for the creation of new intermediaries with costly staff. We think the government could extend a low capital gains tax rate-for example, even 0%-to individuals investing directly and patiently, say for a minimum of five years, in an eligible Ontario small business.

Turning to the recommendations on page 8, summarizing briefly:

The recommendation to reduce business education property tax to 2% is fair, and an important caveat on that is to bar municipalities from moving into the vacated tax room if that's done.

Of course, we continue to encourage the province to adhere to the positive hard-cap principle established in Bill 140 and to address the valuation methodology issues that Mr Beaubien is reviewing.

On employer health tax, the first $400,000 relief was so positively felt, it certainly resulted in lots of jobs, we would hazard. We believe it's time to increase that payroll exemption threshold to the level of $600,000, which coincidentally is also the same level as the annual filing threshold, so there would be some symmetry there.

On capital tax, the relief that was delivered last year on capital tax is helpful to a certain degree. We would like to see that tax simplified somewhat and the whole notch problem dealt with by improving and reconfiguring the relief by implementing a first $5 million taxable capital deduction. That means that any corporation with taxable capital of $5 million or less would be exempt and others would pay on their taxable capital in excess of that figure. Simplifying that tax would be an enormous boon, as it's extraordinarily complex and difficult to understand.

On the fee front, we urge the government to fulfil its pre-election commitment to publicly identify provincial fees and charges paid by business, to review those provincial fees as promised to determine whether they exceed the cost and the value of the service provided and, I expect via the Municipal Act, extend those fee-setting principles to the municipal level of government.

On corporate income tax, the last item under that category on page 10, we have suggested a form of tax assistance along the lines of what Catherine Swift spoke of, perhaps a widely applicable tax credit to encourage electronic business development.

Under personal income tax you'll see the recommendation there that I just spoke of on financing, the capital gains incentive for direct financing.

A couple of smaller ones in terms of updating, but well overdue updating, would be on the retail sales tax exemption on restaurant food. Update that $4 amount and update the compensation for retail sales tax collection to the small retailers who do yeoman's work for government collecting that tax on its behalf.

Thank you for your attention. I'd be delighted to try to answer your questions.

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

Mr Arnott: Thank you very much for your presentation. We appreciate hearing from you again and appreciate the specific recommendations that you've offered this committee.

You've made a good suggestion on the capital tax changes. This morning we heard from the Canadian Manufacturers and Exporters. They suggested scrapping it altogether. We're trying to get a figure as to what that would cost the treasury in the short run. I think your suggestion might be a very good first step and I would certainly highly recommend it to the Minister of Finance.

The other issue I wanted to engage you in is the employment insurance premiums issue because we, as the provincial government, feel that we've done as much as we can to encourage the federal government to revisit this. We know there continues to be an unacceptably high surplus in the EI account. I assume you're encouraging your members to follow up with their local federal members of Parliament. We've got to continue to work on that issue.

Ms Andrew: In every way we can, and we appreciate this government's support. We have a number of recommendations that we're making to the federal government, things like moving to a 50-50 split on premiums, reinstating the new hires program, looking at the implication of people going off on leaves, perhaps there can be some relief on the replacement person, all sorts of ways to try to bring that payroll tax down.

Interjection.

Ms Andrew: Oh, yes. Overpayments on the part of employers, that's another one.

The Chair: The official opposition, Mr Cordiano.

Mr Cordiano: I want to zero in on the property tax question because I think the discrepancy continues to be quite enormous in terms of evaluations. As you've pointed out in your brief, there's a $10,000 discrepancy between a similar business value in Brockville or in that part of the province compared to something in Parry Sound.

This is the eighth tax bill that we've seen brought forward by this government. Maybe you can help explain why it is that they're not getting it right. What's the resistance here?

1620

Ms Andrew: It's an enormously complicated area to tackle, so they do deserve credit for having tried to reform it. Back in 1995, when we did our first study, Silent Killer, we documented some of these horrendous imbalances in the system and urged the government to fix them. They're not things that are going to be fixed overnight, so we're kind of happy that Bill 140 is starting to fix them. But we need a lot more direction to municipalities in terms of narrowing the business-residential gap.

I was just passing around some charts. The problems are most acute in Toronto. If you look at the gaps here, it's just-

Mr Cordiano: You're looking at the gap between residential and commercial. I'm talking about similarly valued businesses in two different parts of the province.

Ms Andrew: And a big part of that is the history with the business education portion. That's of course now all under the province's wing. School boards had bargained various contracts over the years and had ended up with very differing rates across the province. To deal with those, we're arguing that they need to basically buy the 3.3% average rate down toward 2%. Ideally, you'd want to bring it down so that there weren't those discrepancies. It's a lot of money.

Mr Cordiano: Yes. I think the whole objective here is to level the playing field. Ultimately, if you're going to lower the revenue, which is what you're suggesting, going from 3.3% to 2%, that revenue is going to have to be made up somewhere for education. There are some substantial differences.

Ms Andrew: Business is paying eight times what residents are paying. So the taxation is a different calculation from the actual funding formula for the schools, which is a little more uniform, and the province makes up the difference.

Mr Cordiano: I can't imagine, though, any of us trying to sell an increase on residential property taxes. It's just not going to fly.

Ms Andrew: No, we're arguing that on the business education portion, the province use its financial resources to bring that rate down.

The Chair: With that we've run out of time, Mr Cordiano. Mr Christopherson.

Mr Christopherson: We argued in the last budget that they should do that. Even if it meant some of the tax cuts would be lessened or phased in longer, that was a priority. I've mentioned this to you before. But certainly if you want to see a classic example, take a look at downtown Hamilton and the problems there because of the introduction of the change and then capping it. We're bleeding away in downtown Hamilton. I've also mentioned the same thing on Concession Street on the mountain and in Westdale in the west end of my riding. So it's happening everywhere.

You mentioned municipal taxes. I just wanted to point out-this is today's Hamilton Spectator-"15% Hike for Water and Sewer," not because these politicians want to raise taxes any more than anybody else but because they've-and we had a presentation from the infrastructure association. Just in terms of the long-term sustainability of the community, you've got to have the sewer and water lines in place, as well as for the business end of it.

Anyway, my point is that you're encouraging tax cuts continue at the same time we're seeing revenue dropping. We've had a couple of scenarios today where it's likely we're going to see the government in a potential deficit position. The only way they can prevent that is to not implement the tax cuts they've already announced. If they insist on doing that, then they're either going to run a deficit or they're going to have to cut expenditures.

You can bet that municipalities are going to be on the front line, because all the downloading has put tremendous-I've said from the beginning that my heart goes out to all municipal councillors, who are struggling. They've got nobody else to dump on; they're the end of the road. This is what happens in the real world when you do that.

Every business group has come in and mentioned property taxes as a priority. We even had Mr Porter, who was in here earlier from Nesbitt Burns. I don't want to put words in his mouth-I say that for the record-but basically his message was, sort of, back off a bit on the tax cuts in the short term-he was still committed in the long term-because of the situation we found ourselves in. It's rapidly changing in terms of this situation we're in.

All of that is to say that it would seem that regardless of ideology and philosophy about tax cuts, the prudent, immediate, short-term approach should be to back off with the tax cuts, keep your eye on the expenditure side of things, and if balancing the budget is the priority, then that's the only way to approach it. Anything different than that means you've either got to increase revenue or start cutting, and cutting, I'm suggesting to you, means municipalities are going to pay the price. To me, it seems you may be arguing against your own best interests by urging the government to make tax cuts the absolute priority at a time when doing that means they're going to be in a deficit position.

Ms Andrew: We definitely believe the message from the job creators, who are most harmed by profit-insensitive tax, is that something has to be done about property tax. That is a recession-proofing measure.

Mr Christopherson: Oh, absolutely.

Ms Andrew: If you don't fix that, then you're going to have more people on the street and fewer tax dollars rolling in the door.

Mr Christopherson: I want to be clear. When I'm saying "tax cuts," I'm talking about the corporate tax cuts and the income tax cuts, not the cuts you're mentioning. I agree with you that we've got to keep municipalities strong, financially, or the budget is not going to work.

Ms Andrew: I don't disagree that the area of municipal finance needs to be settled. There have been allegations back and forth about what's been downloaded. That needs a forensic audit, frankly. There was an audit in Toronto and it certainly looks as if they weren't feeling the downloading to the extent that some of the politicians were claiming. It's not a bad thing that the residential voter is going to have an opportunity to keep local politicians accountable for their spending. If politicians can continue to load an unfair portion on the business sector and the residential voters aren't paying their fair share, they're going to naturally want more spending. In the ultimate analysis, that's going to mean fewer jobs for those residents and for their children. It's a short-term, long-term thing in terms of cushioning the residents.

The Chair: With that, we've run out of time.

Mr Christopherson: I should say that the pressures are greater than just the downloading. It's also the issues they have to deal with. They have the upward pressure on them.

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

Ms Andrew: Thank you very much. I tried to circulate some that would be pertinent to your particular communities, so I hope you found what you needed there.

The Chair: I have just been informed that the next presenters are not here yet, so we'll take a short recess.

The committee recessed from 1627 to 1629.

ONTARIO ASSOCIATION OF NON-PROFIT HOMES AND SERVICES FOR SENIORS

The Chair: Our next presentation is from the Ontario Association of Non-Profit Homes and Services for Seniors. First of all, on behalf of the committee, welcome. Could you please state your names for the record.

Ms Donna Rubin: Good afternoon, ladies and gentlemen. My name is Donna Rubin. I'm the chief executive officer of the Ontario Association of Non-Profit Homes and Services for Seniors, commonly known as OANHSS. I'm here today with Reg Paul, a member of our board and our association's treasurer.

Our organization very much appreciates the opportunity to present our views to the standing committee as part of the provincial pre-budget consultation process. We believe the committee can make an important contribution in raising the awareness of the Legislature, the Ministry of Finance, the media and the public at large regarding the critical need for adequate operating funding in the long-term-care sector.

OANHSS is a voluntary, province-wide, non-profit association which for over 80 years has represented non-profit providers of services and housing for seniors. Our 400 members from across Ontario span the spectrum of the not-for-profit, long-term-care continuum, including municipal and charitable homes for the aged, non-profit nursing homes, seniors' housing projects and community service agencies.

We are committed to exploring the best ways of providing and delivering much-needed health services and programs to our clients. Last fall, all MPPs received a comprehensive package of information from us as part of our ongoing facility funding awareness campaign. It will be my intention today to highlight certain aspects of our concerns and update you on recent developments. We will also be leaving with you today two key recommendations which we hope you will seriously consider when formulating your advice to the Legislature and the government.

Last year in our submission to this committee we warned, "We must invest in our own future, and we must do it now." We indicated that our members, as front-line providers of care, were "increasingly frustrated with and constrained in their ability to maintain innovative, responsive quality programming for seniors."

The situation for providers and those to whom they provide care continues to worsen. Government funding for the operation of municipal and charitable homes for the aged and nursing homes is not keeping pace with the changing requirements of residents who today are being admitted with far more complex health care needs. As a result, our facilities are now finding their ability to provide adequate, appropriate quality care is being compromised. These two factors, continued underfunding by the provincial government and an older and sicker resident population with increasingly complex needs, are causing major stresses in the system. Something has to give, and it should not be the residents or their families. We are rapidly approaching the point where our facilities can no longer cope.

We have estimated that the Ontario government is now underfunding long-term care by at least $230 million a year. The number is in fact higher and continues to grow as more information and analyses become available. That is the minimum amount of new funding required to meet current demands. Significantly more will be needed to address future needs. Currently, Ontario long-term-care facilities receive an average of about $100 a day for each resident. Of this, about $60 is paid by the province, one of the lowest rates in the country, with the balance coming from client payments.

Over the past two decades, the average age of long-term-care residents has increased from 73 to 86. The typical resident today is not only older but also sicker, often having multiple chronic illnesses and being in need of more care. As well, about half of all residents suffer from Alzheimer disease and other dementias.

So what is happening? Faced with this underfunding situation, long-term-care facilities have had little choice but to cut back on programs and services. This means they have had to reduce the level of individual care as well as the personal support for activities of daily living. For example, routine bathing may be provided only once a week. The care provided is still of the highest quality but the level, quantity and intensity of that care is not what it should be for the residents of Ontario or their families. Each registered nurse in many of our facilities now looks after an average of 60 residents in a normal day shift and over 100 in a night shift. Keep in mind that these staff are now looking after people with much higher care needs than in the past.

According to Ministry of Health and Long-Term Care statistics, there are about 14,000 Ontarians currently waiting for placement in long-term-care facilities. In some communities the wait can be as long as four years. The Ontario government has announced the creation of an additional 20,000 beds, but most of these will not be available for several years. In the meantime, many facilities are having to turn people away who need long-term care. Even when the much-needed and much-appreciated 20,000 new beds are added, the problem of understaffing and inadequate levels of care will continue to plague the system as long as the province fails to provide the necessary day-to-day operating funding.

As you're well aware, the province's acute care hospitals are crowded with elderly patients requiring long-term care. These individuals cannot be discharged, often because there's nowhere for them to go, so they remain inappropriately placed in hospitals at about $400 per day, or four times the cost of long-term-care facility placements. Long-term-care facilities, if properly funded, could help alleviate this problem.

It is worth noting that provincial government spending on long-term care represents only 13.6% of the total Ministry of Health and Long-Term Care budget. About half of the $3.1-billion long-term-care envelope goes toward facility funding and the other half to community-based services. Increases in ministry expenditures in the long-term-care area have recently been averaging less than 1% a year. This is clearly inadequate, given the current projected rising demand for services.

The future: in Ontario, the 85-plus age group is expected to increase fourfold by 2028. Currently, there are some 100,000 people in Ontario who have Alzheimer disease. This number is expected to triple over the next 30 years. According to the Ministry of Health and Long-Term Care, the number of people with dementia will increase 85% by 2010.

In spite of the good intentions of this government and previous governments, and some substantial steps taken to address certain funding concerns, long-term care in Ontario is in crisis. With an older and sicker resident population, staff stretched to the limit, long waiting lists, people being turned away from facilities and lack of proper funding from the government, is it any wonder that many long-term-care facilities are at a breaking point?

OANHSS and other provincial provider associations have been working with government as part of the current budgetary process to more accurately quantify the crucial need for increased operating funds for facilities. These figures are now before cabinet and therefore cannot be released. It's for this reason that we continue to reference the need in terms of a minimum of $230 million.

Finally, a longer-range vision and plan is also needed. Longer-term, the province must invest significant new money in long-term care to ensure needs are being met for a growing and aging population. We are committed to working with the new Minister of Health and Long-Term Care, the new Minister of Finance and all members of the government and Legislature to address these very serious concerns.

In summary, our recommendations are:

(1) Increase immediately the government's share of the provincial residential per diem payments for long-term-care facilities by at least $11, from $60 to $71, thus increasing operating funding for these facilities by a minimum of $230 million per annum. Again, please note these numbers are adjusted and higher in the material currently before government.

(2) Develop a long-range plan to increase funding for long- term-care facilities so as to ensure the continued delivery of high-quality, complex care and to meet the growing need for long-term-care services in Ontario over the next 25 years.

Thank you very much.

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

Mr Kwinter: I appreciate your submission. I represent a riding that has the largest concentration of seniors in Ontario. There isn't a week that goes by I don't have a constituent-their families, actually, not the constituents-coming in to tell me about the problems they're having getting some sort of accommodation for their parents, who are in dire need of long-term care and just can't get it. They have no way of getting to it.

1640

I'm curious to know about the figure you talk about where you say the increase is "averaging less than 1% a year." Is that capital or operating?

Ms Rubin: That would be operating.

Mr Kwinter: So in effect there is no increase because the rate of inflation has been much higher than that. You're actually getting less money each year, even if they give you a 1% increase.

Mr Reg Paul: Yes. In fact, it also doesn't properly address the acuity increase because we know that acuity across the province-Ontario has one of the lowest percentages of institutionalized care across Canada and therefore we know people are staying in the community longer, which is good. When they do come into our homes, their care needs are higher and the percentage of care, which is measured presently and which does not properly assess and measure cognitive impairments, is much higher than even measured. We are falling behind both from an inflationary standpoint and from a care standpoint. It's being adjusted on a base that was terribly inadequate when it first came in. The amount of funding in 1993 was just under $80 per resident day on average under the level of care system and we're up to somewhat just under $100. We're adjusting an inadequate base, so it makes measurement as a percentage a difficult one to deal with.

Mr Kwinter: I also have first-hand knowledge of the problem you're talking about where there are people in long-term-care beds in hospitals who should be in long-term-care facilities, where the savings are fairly dramatic, like a quarter of the cost, and yet they have no place to go. They're taking up the space and there's nothing you can do about it. They're just there. You can't put them out on the street, so you have to keep them.

Ms Rubin: It also suggests it's not a quality environment for them to be in. At least we consider our facilities as homes for people. Then of course there are the people in the community. If they're ineligible for long-term care, they need access to 24-hour care. If they're in the community and they have to wait two to four years, they're in dire straits. They also are a burden to the caregivers who need to care for them, and it may be an elderly spouse of 86 years of age or older who's caring for the individual as well.

Mr Kwinter: The 20,000 long-term-care beds that have been announced, what is your estimate as to when they will physically be on-line so they can start receiving residents?

Ms Rubin: They're starting to come on board, but slowly. Of course they're being monitored to open by the year 2004. The whole industry is either building or rebuilding, and that will put some instability in the industry for the next period of time. We have in our sector approximately 80 facilities that will have to be rebuilt because they don't meet current design standards, and while they're going through that process, they're not going to be able to accommodate even the full number of people they've got residing in them right now. As you close a facility, you have to do something with the people who are living there. That means the industry's going to be in flux.

Mr Kwinter: Those ones that are being retrofitted, are they included in the 20,000?

Ms Rubin: No, they're separate and apart.

Mr Cordiano: I think it's clear the province is facing a huge crisis when it comes to long-term care. To be fair to everyone concerned, it has been a problem that didn't just emerge yesterday. It has been around for some time, but I think we're seeing now an acute crisis that is emerging. You note in your brief that there are 14,000 Ontarians currently waiting for long-term-care facilities. Obviously you expect that to grow over the next number of years.

Ms Rubin: With the new beds coming on stream, we hope that will alleviate it somewhat, but given the demographics, there will continue, in our opinion, to be a real need. In fact, unless there are investments to also increase appropriate housing for seniors, including supportive housing, facility care is not going to be enough.

Mr Christopherson: Thank you for your presentation. I have to tell you that I've heard it anecdotally, I hadn't seen it in writing, and it enrages me even more to see it in writing where you state, "For example, routine bathing may be provided only once a week." That's pretty disgusting, especially given the fact the government did have $4 billion, of which the very wealthy got the lion's share and here we have other people literally living in conditions you wouldn't imagine are happening here.

You told them last year, a lot of us told them, "For goodness' sake, don't go with the tax cuts until you've taken care of a whole lot of infrastructure stuff, up to and including balancing the budget," and they just roared straight ahead and did it anyway. What really hurts is that if you've got the money, you can buy your way out of this problem. This is a problem faced by the majority of Ontarians but not all Ontarians. If you've got enough money, you can cut a cheque that will take care of your mom or dad without any problem, and you'll get Cadillac services. There's lots of it out there. You don't need to worry about this, but for the vast majority of people who need this, they didn't get the benefit from the tax cut and it's their mom and dad who are getting a bath once a week. I'd use stronger language if I were elsewhere. It's so damned infuriating to see this happening.

Let me ask you: if I'm getting this right, the theory versus the reality, the theory is that, as much as we can, we want to move people out of the institutional setting of a hospital, have them in their home and provide the services from the community. It's cheaper and people will have better surroundings. Their environment is better, their home and their family are there, and we bring the services to them. Even though some say it's a marginal saving at best, it's a better quality of life, if nothing else, and there is the argument that it does save money. Only when we get to the point where they can no longer be sustained by bringing the services to them from the community into their home do we then move them into a long-term-care facility-not back to a hospital, because they don't need that kind of intensive care. Mr Kwinter has already covered the difference between acute care and chronic care.

If I've got that correct, one of our problems here is that at this point now-in fact we're already getting behind in time-if you will, we know that although there will be more and more people being served and treated in their homes, ultimately they're likely to end up, for a short while anyway, in a long-term-care facility. The baby boomers, the numbers alone, the growth in the population will necessitate more expenditure at that end of the health care continuum, and yet now, when we should be making the investment for our long-term care, we're down to-what?-you said 1%. That's pathetic. One per cent is not going to do it.

My question to you is, if we keep ignoring it, does it not mean at some point we're going to have more and more people spilling out of the system, sitting at home and not getting the services they need? That's already happening in some cases. Talk to VON workers and some of the CCAC case managers and they'll tell you. But it also means it's going to cost us a lot more as a society down the road if we're committed to providing that as part of our health care continuum. Is that not the price we're going to pay? It's no different from not upgrading the sewers and water. When you don't do it, you end up with one of these headlines that we've got in Hamilton, "15% Hike for Sewer and Water." It would have been a lot cheaper if the senior governments had stepped in and helped municipalities along the way earlier.

Ms Rubin: You've got it absolutely right, Mr Christopherson.

Mr Christopherson: I was afraid of that.

The Chair: The government side, Ms Molinari.

Mrs Molinari: Thank you very much for your presentation. Health care has been under review since this government took office, and with the Hospital Services Restructuring Commission that did the study, it was recognized there are a lot of areas that need to be improved and changed in order to serve the aging population. We can't keep doing things the way we were doing them when the population is changing. We need to change toward the need. That study was very valuable. Some of the recognition was the fact that there is a growing aging population. That's why the 20,000 new long-term-care beds were introduced back in April 1998 and the need for that has been moved up in order to provide for that sooner. The target now is 2004, when we hope to have the 20,000 long-term-care beds.

1650

There are a number of areas the Ministry of Health has recognized and looked into improving. The 6,438 new long-term-care beds are being developed as a result of some of the requests for proposals from 1998, and in 1999 there are an additional 6,291 that are being developed in that area.

You talked as well about the interim issue, where there are people who are in a facility in a situation where they need to be moved into long-term-care beds and they're not available. I don't know whether you're aware that there was a process undertaken to review what was needed in this area and, to date, 1,716 interim beds have been approved. There are another 562 that are in negotiations to accommodate some of those.

You also indicated the rebuilding, refurbishing and restructuring of some of those that definitely need it. The ministry has recognized that those are also areas that need to be addressed.

Health care, along with some of the other issues, is evolving. With an aging population, where people are living longer, it could be said that we have a good health care system that provides the medication and the care one needs to live a longer life, but then there are challenges we need to address, and that's how to properly and adequately care for them. I'm disappointed to hear from your presentation that in fact, if that's the case, they are only given a bath once a week. I think that's rather sad and certainly that's something that needs to be addressed.

I know the Minister of Health and the new Minister of Health will value and be in consultation with organizations like yourselves to come up with recommendations on ways we can continue to improve those areas. Some of the things you've indicated here, certainly this is the appropriate committee for funding. That may be one area where that can be done, but there are a lot of other efficiencies in areas that need to be addressed as well. The Minister of Health and the government are committed to doing whatever we can to improve health care for the aging population.

I thank you for the suggestions you've made here. I'm sure the Minister of Health will look at them and take them into consideration along with the others.

Ms Rubin: Thank you.

The Chair: Any comments?

Ms Rubin: Yes, I'd like to make one comment. I think that while it is well intentioned to provide the 20,000 new beds and the rebuilding, the reality is that the money to do so, particularly in our sector, has to come out of any surplus or operating efficiency that could possibly be found out of the operating dollars. So already when we're in crisis, the need to rebuild and to build 20,000 beds in the not-for-profit sector, and particularly charitable homes, which have very little additional money, that alone is going to make it increasingly difficult to provide quality care.

The Chair: With that, I'd like to thank you for your presentation this afternoon on behalf of the committee.

MEDICAL REFORM GROUP

The Chair: Our next presentation is from the Medical Reform Group. I would ask the presenter to come forward and state your name for the record. On behalf of the committee, welcome. You have 30 minutes for your presentation this afternoon.

Dr Ahmed Bayoumi: Good afternoon. My name is Ahmed Bayoumi. I'm a general internist, a physician in Toronto. Thank you for the opportunity to appear before the committee. I'm going to go through the document that has been distributed.

The Ministry of Finance has indicated that Ontario's economy remained strong through the last quarter of 2000. Against this backdrop, funding for the health care sector increased in the last fiscal year. Spending must, however, be measured in terms of per capita funding, adjusted for inflation and overall economic growth. In relation to economic growth, and considering inflation, spending in 2001 will still lag behind what it was in 1995. Furthermore, deep cuts to other sectors, such as welfare, housing and education, have had significant deleterious effects on health. In addition, changes to both the funding and policies of the health care system have left it vulnerable to privatization.

I'm here on behalf of the Medical Reform Group, which was formed in 1979. We are a group of 200 practising physicians and medical students. The MRG represents the views of its members on health and health care matters through research, public statements and consultation with other groups who share our aim of maintaining a high-quality, publicly funded universal health care system. The MRG believes health is political and social as well as medical in nature, and that health care is a right.

We have several specific recommendations for the committee.

The first is to reinvest in social programs. The MRG has long recognized that the greatest improvements in health are achieved through spending on social programs. Good housing, sanitation, education and nutrition are essential for good health. In Ontario, babies born to parents living in poor neighbourhoods compared to those born in wealthy neighbourhoods are twice as likely to die in infancy. At birth, boys of families with the highest income level can expect to live 5.6 years longer, and girls 1.8 years longer, than those with the lowest income. Eliminating these differences would have the same impact on Canadians' life expectancy as eliminating all deaths from heart disease. Ontario health survey data show that 69% of those with high incomes report very good or excellent health, compared to only 43% of poor Ontarians. Four per cent of the wealthy but 19% of the poor report a long-term activity limitation. Deaths among homeless persons, unknown before 1995, are now commonplace.

Alleviating the effects of poverty will improve health. The next Ontario budget should increase welfare payments, restoring payments to 1995 levels, immediately restore funding for new social housing in Ontario, and address the decline in education standards throughout the province. The MRG unequivocally opposes any new cuts in social programs or further tax cuts for corporations or the rich.

Our next recommendation is to bring in integrated and effective primary care. Hospital restructuring has created more pressure for reinvestment in primary health care and community support for frail and at-risk populations. Primary health care reform is long overdue in Ontario. OMA pilot projects have done nothing but stall necessary restructuring. Many Ontarians find themselves without a primary health care provider or with no one to speak to for medical advice after hours. Telehealth will provide some telephone advice and triage, but it cannot take the place of an organized, comprehensive, accessible and appropriate primary health care system. All Ontarians deserve 24-hour care, seven days a week, instead of piecemeal care which is fragmented, inappropriate and wasteful.

With federal dollars earmarked for both primary health care and information technology, the 2001 budget should and must build a strong foundation to support secondary and tertiary health care. We need a well-funded and well-organized primary health care sector. Ontario currently has 56 community health centres, which provide comprehensive primary health care. These centres demonstrate what we know from the published scientific literature: teams of doctors, nurses, nurse practitioners, social workers and other health care providers can make our health care dollars go further by using non-physicians to deliver appropriate care. Nurse practitioners, working in collaboration with family physicians, can help address the fact that many Ontarians cannot find a doctor. Health centres, group practices and networks can be funded to provide effective home care services, after-hours care, urgent and same-day care, obstetrics and palliative care, as recommended in the 1996 PCCCAR report. By investing in good primary care, with appropriate incentives to enhance the delivery of effective preventive and therapeutic services, the province will save money in treating illness and its complications. The MRG calls on the government to make that investment now.

Our next recommendation is to establish universal pharmaceutical insurance. Since the imposition of user fees for prescription medications covered by the Ontario drug benefit formulary, our most vulnerable residents have had to pay more and more out-of-pocket expenses for their medications. Such expenses totalled $200 million in 1997-98 and $215 million in 1998-99. This is a significant amount. It represents approximately one of every six dollars spent on prescription drugs. Even seemingly small copayments can severely limit access for the most vulnerable groups in Ontario. Recent data from Quebec illustrate how user fees for drugs lead to severe adverse health effects. Additionally, the Trillium drug program often falls short of providing the requisite level of assistance.

An alternative to user fees, incomplete coverage and high deductibles exists. Universal drug insurance is both just and feasible. Universal drug insurance is viable and more economically attractive than the limited public insurance available currently. Universal coverage allows for risk pooling, eliminating unfairly high deductibles. Economies of scale allow for potentially large cost savings. In addition, universal coverage may save money in some situations by eliminating gaps in coverage, which ultimately result in worse ill health and unnecessary hospitalizations.

1700

Our next recommendation is to make home care accessible and accountable. Home care services in Ontario are in serious trouble. About half of all people who need home care must purchase services privately or rely on family and friends. In some areas, such as Metro Toronto, the availability of home care services is severely limited. The decrease in access is contemporaneous with a shift in how home care services are delivered in Ontario. Since April 1999, community care access centres have acted as brokers for health care, with private for-profit agencies competing for these services. The impact of this change in policy has been a decline in the accessibility and reported quality of home care services in Ontario. Additionally, details of the contracts between the community care access centres and the province are not public. The result is that there is no public accountability left in the home care system. The next budget should increase the amount of public funding for home care, but even more importantly, should restore a universal, publicly funded home care system in accordance with the Canada Health Act, an act this government has endorsed.

Our last recommendation is to keep funding for health care in the public system. Home care services are the most glaring example to date of how privatization of the Ontario health care system leads inexorably to a loss of quality. But privatization is increasing in other areas as well. During the 1990s, the proportion of funds spent on health care which were private increased from 27% to 34%. We are witnessing a determined shift away from the very concept of social insurance. In real terms, fewer costs are paid through public insurance and more are paid directly from households. This is already occurring, for example, with the last government's institution of user fees, and we are also witnessing the increasing stratification between those who can afford to pay for these services and those who cannot. Examples of privatization are: the private provision of home care services; user fees for prescription drug benefits; delisting of prescription drug benefits; and increasing reliance on private providers for long-term care delivery.

The hospital sector is also threatened with privatization. The current government's last election platform, the Blueprint, states, "Hospitals will have their funding directly tied to how well they live up to their service obligations ... under the Patient's Bill of Rights." Hospitals that do not perform well on standardized ratings will have, to quote again from the Blueprint, "health care efficiency and service experts ... revamp their systems," a phrase loaded with the jargon of privatization.

Cost shifting is not cost saving. The provincial government may be able to claim that they have saved money because they are asking others to pick up the tab, but most Ontarians will be worse off, particularly those with poor health or limited financial resources.

Privatization will lead to a worse quality of care, a weakened public health care system, and diminished access to care. The only effective defence against privatization is a strong, universal, accessible, publicly funded health care system. The budget should reflect this commitment.

Recent economic indicators suggest that the US economy may be experiencing a downturn, and perhaps heading for a recession. The MRG is concerned that crisis language serves well the agenda of those eager to dismantle or weaken social insurance. During the severe economic recession of the 1980s, governments in Canada used the state of the economy to justify cuts in social programs. The experience in health care is instructive in this regard: a large body of literature indicates that public administration of health care funds is the most efficient use of these resources. A decision to bolster, not weaken, publicly funded insurance programs in times of economic downturn is evidence of both rational decision-making and visionary political leadership. Thank you.

The Vice-Chair: Thank you very much for the presentation. We have about six minutes per caucus. We begin with Mr Christopherson.

Mr Christopherson: Thank you for your presentation. You said an awful lot in a very concise document. You cover so much ground it's hard to know where to start.

A macro question: what is your sense of where the young doctors who are graduating now from med school are at vis-à-vis the kind of reform that you and, would you say, 199 colleagues support? At this point I don't think the OMA is onside nearly as much, to put it mildly. Do you sense a change with young graduates?

Dr Bayoumi: I think it's not just young graduates, but doctors in general are eager to see primary care reform brought in. Surveys of physicians show there is actually considerable support for changing the way primary care is delivered. It's not a situation that leaves a lot of primary care physicians particularly happy-the way they're able to practise health care-and I think young physicians see that perhaps more acutely because in training they are exposed to a variety of different scenarios, many of which are scenarios in which physicians are not practising what they consider optimal.

Mr Christopherson: So you think it's maybe a misconception to believe-if you talk to folks in the know about this, there are a number of people who will say, "It's a lot of the docs who benefit from the entrenched system and they don't want to change from it," but we're hearing something very different from you and a previous presenter.

Dr Bayoumi: I think if you actually look at the surveys critically, you will see that some people do in fact not want the system to change, but there is a very large proportion, particularly of primary care physicians, who are unhappy with the lack of progress in primary care reform. Primary care reform would not be something that would be resisted, I believe, by the majority of primary care physicians in Ontario.

Mr Christopherson: That's good to know, because what it means is that the only foot-dragging is on the part of the government, which talks a good story but doesn't seem to want to move on it.

I want to commend you for linking the whole issue of social services that are provided directly to the health care system, because they are inseparable. You make the statement that you've long recognized that the greatest improvements in health are achieved through spending on social programs.

For a long time, long before Walkerton came around, I pointed out that the biggest single advancement in improving the public health of any citizenry was not the introduction of new magical drugs, not the introduction of new surgical procedures and not the introduction of new technology; it was the provision of clean water. Clean water being provided to the general public was historically the single biggest improvement in the health of the general population, and we sometimes lose track of that. Again I applaud you for linking that and it will be helpful.

I'll be talking about two things and then I'll give you a chance to respond to any of what I've mentioned.

You talk about the need for universal pharmaceutical insurance, something the NDP has long believed in, both provincially and federally, and we can afford it. In fact, it will save money in the long run. But again we're into, "Those who can afford to don't need this kind of program," and unfortunately they are speaking with the loudest voices, at least in terms of who this government is listening to. Is it your experience-I hear this anecdotally-that a lot of seniors, because of lack of discretionary funds and increased user fees, are doing more and more self-medicating? Because they can't afford the full complement of their drugs, they're deciding which drugs they can take today and which ones they can hold off on until tomorrow. Is that an issue as you see it?

Dr Bayoumi: I think it's a very real issue, and anecdotally I hear it as well. We have real, solid research evidence from Quebec that seniors are not taking their medications as they should because of the imposition of user fees, which are real barriers to people treating themselves as they appropriately should, and with serious health consequences. People are getting sick and dying.

Mr Christopherson: You raise the issue also of home care services. In fact, you state, "Home care services in Ontario are in serious trouble." From where I sit, anyway, there are a number of issues. We went through a long strike in Hamilton with VON. Because of the government's managed competition, what's happening is that privatization is in home care services in a big way and it's having a huge downward pressure on wages, which means a lot of nurses, who are in scarce supply, only stay for as short a period as they can at $13 or $14 an hour, waiting for a chance to get into a hospital where they're back into a union setting and getting decent wages, and who can fault them for that?

1710

There are two things there: one is the government's overall strategy and plan, which we've said from the beginning was to lower the value of all labour, whether it's professional skill trades or manual labour. They want to depress and lower all of that because it creates the kind of economic climate where their friends can move in and make a pile of money, and they've now introduced privatization into this where there are non-union entities that are competing with organizations like the VON which are unionized, and those organizations are having a tough time competing. Those, at least in the view of Hamilton, are a couple of the key problems. Would you agree with that?

Dr Bayoumi: Absolutely. We're seeing in the hospitals that we're having difficulty arranging home care for people in the community. It's exactly the opposite of what the overall thrust has been in the last few years, which is to move care into the community. We can't move care into the community because there aren't people to provide that care, and that's a direct consequence of privatization.

The Vice-Chair: We will now move on to the government side.

Mrs Molinari: Thank you very much for your presentation. You are a group of 200 practising physicians and medical students who are part of the Medical Reform Group, right?

Dr Bayoumi: We are approximately 200 now.

Mrs Molinari: Are you familiar with the Association of Ontario Health Centres? They presented to us earlier today and the topics are relatively the same. Are you familiar with this organization?

Dr Bayoumi: Yes.

Mrs Molinari: Were you here for the presentation?

Dr Bayoumi: No, I was not.

Mrs Molinari: One of the things they talked about with respect to primary care reform, one of the ways they suggest, is that physicians be on salary as part of a multidisciplinary team. Expanding health centres would provide salaried positions for 375 more physicians and 50% of family physicians would accept salaried payments according to a recent Ontario College of Family Physicians survey. Would you agree with that statement? What are your views?

Dr Bayoumi: Yes, we have long advocated the expansion of community health centres as an effective and cost-effective means of delivering care.

Mrs Molinari: You have some really good suggestions on primary care. On page 3, point 6, "Make Home Care Accessible and Accountable," in the last statement here you state that it should be a "publicly funded home care system in accordance with the Canada Health Act, an act this government has endorsed." Are you implying that it isn't at this point?

Dr Bayoumi: I am very seriously concerned that accessibility, which is one of the five principles of the Canada Health Act, has been compromised in the home care system.

Mrs Molinari: How has accessibility been compromised?

Dr Bayoumi: Because home care services are simply not available. You can't access something that's not available.

Mrs Molinari: You also talked about privatization and, from your presentation, it's not something that you support at all. Am I reading that correctly?

Dr Bayoumi: That's correct.

Mrs Molinari: Would you say, then, that there shouldn't be any type of service available for those who would choose to purchase services for whatever care they would require or need?

Dr Bayoumi: That's a very broad question in terms of any services. I think the principle should be that health care should be publicly funded and health insurance should cover all necessary services within Ontario.

Mrs Molinari: If some private organization is offering those services and people wish to access those services, is it something your organization would not agree with?

Dr Bayoumi: That's correct. If those services contravene the Canada Health Act, we would not agree with that.

Mrs Molinari: Does your organization have the support of the OMA?

Dr Bayoumi: We are an independent organization from the OMA. They agree with us on some issues and they disagree with us on others.

The Chair: Any further questions?

Mr O'Toole: I would be very interested in following up on the OMA. The OMA has agreed to participate in primary care reform. It sounds, from what I heard-I was watching this, as it is televised; even though I wasn't here physically, I was here mentally-that you're supporting primary care reform in a definite sense, and full accessibility to a range of services. My key question is, the OMA has already signed on to agree with the seven pilots in Ontario with the expectation that in three years, with that agreement, they will be-I shouldn't say this-on salary, which is like this community care thing, the community health centres. Is that not right? Do you not read that the same way as I do?

Dr Bayoumi: I don't know what the OMA thinks. I'm not privy to their-

Mr O'Toole: Are you not involved? You're a member, though.

Dr Bayoumi: All physicians who bill OHIP are members of the Ontario Medical Association under the Rand formula.

Mr O'Toole: You're under the Rand formula? Oh, Jeez, I didn't know that.

Dr Bayoumi: Yes. That is the agreement that your government negotiated with the OMA.

Interjection.

The Chair: One conversation at a time, please.

Dr Bayoumi: The OMA may or may not support physicians being on salary. They have not clearly come out and stated that. If you have information that's more definite than that, I'd be interested to hear it.

Mr O'Toole: No, I'm asking you as a practising physician. It sounds like you're fully agreeable with that, that your patients come first and that money comes second. That's great that you think that way.

Dr Bayoumi: Our main argument, if you read the brief, is that the pace of primary care reform does not need to be as slow as it is now.

Mr O'Toole: I kind of agree with you, I might say.

Mr Kwinter: Thanks for your presentation. I just want to tell my colleague Mr O'Toole that when he was up in his office, I was there with him mentally but not physically. I was thinking about him.

I want to talk to you about a couple of things. I want to tell you my experience in a couple of areas that you've covered. One is the additional fees for certain drugs. I have a brother-in-law who is a pharmacist in my riding. He's got a large Shoppers Drug Mart. He's always telling me stories about how seniors come in and because they're on the drug benefit plan, they expect that all of their prescriptions are free. Occasionally their doctor will prescribe an item that is not on the drug formulary. So when they give the customer this package, they'll say it's going to be $8 or $12, whatever it is, and they say, "No, I don't pay for drugs. I'm a senior. Take a look. I've got it registered. I'm a senior." And they say, "Yes, you are a senior but this is not covered." They say, "Well, then, take it out." If they have to pay for it, they don't want it.

That may be the most important product that they have in their little bag, and yet, because of that, they have unilaterally decided that if they have to pay for it, they're not going to do it because they can't afford to pay for it. He tells me that is not an isolated incident, it happens regularly. It drives him crazy because he really feels that people are making decisions that are not soundly based on medical reasons but for financial and economic reasons.

I don't know whether you've found that in your practice or not or whether it inhibits you from prescribing certain things that may be the best treatment for that patient but, because of the financial implications, you don't.

Dr Bayoumi: I think you raise an excellent point. I do find that all the time, that I'm constrained in what I can prescribe and constrained in what my patients can pay for. I think the very nature of the imposition of user fees leads me to be concerned that those who endorse those user fees do not appreciate that what may seem like small amounts to people with good incomes can be very large amounts to people on fixed incomes and can act as real deterrents and can really lead to suboptimal health care.

1720

Mr Kwinter: I want to tell you about another incident that I'm literally living with as we speak. I have a community care access centre in my riding. They had a contract with home care providers and they've had it ever since the inception of the program. The contract came to an end and they have negotiated a new contract with another group. Obviously, it must mean because the other group is cheaper.

I'm now caught in the middle. Every day I get e-mail, faxes, telephone calls and letters from the providers who are saying, "I have been working for this organization, I've been doing my job and now I'm told I don't have that job any more," which in itself is a problem. But on the other side and where I'm caught in the middle, I'm now getting calls from the patients who are saying, "I've had this health care provider who was terrific and I've developed this relationship. They know me, they come in, and they do what they have to do and it's excellent. Now they tell me they're not going to be there and I have to worry about someone else that I don't know. I don't know how they're going to be. What sense does that make? These people were doing their job, I was happy with them and now they tell me, because of this contract that has been let to another group, `We can no longer provide you with the service that we've been providing.'"

That is a direct result of privatization, where the bottom line is what determines the service that's provided, as opposed to a service that is really geared to outcomes. Do you have any comment on that?

Dr Bayoumi: I couldn't agree with you more. Cost is certainly a consideration. The quality of home care services seems to not even be on the table, and quality includes who is providing it, continuity of care and all those issues you've mentioned. You can't run a private health care system and have it publicly accountable. It's an untenable situation and it creates a loss in quality for what may or may not be savings in costs, but we'll never know because there's no accountability built into the system.

Mr Kwinter: Do I have time?

The Chair: Yes, you've got about a minute and a half.

Mr Kwinter: Earlier today we talked about these health service centres, and doctors, as opposed to being on fee for service, would be on a salary. I don't know whether you're prepared to answer this or not, but I felt that, sure, doctors would like to be on salary. The question is, what is that salary? Do you have any ideas of what salary would be attractive to a doctor to get into a practice where he gets a salary, as opposed to a fee for service? I don't want to put you on the spot. I just want to get a ballpark kind of a thing so we know what we're talking about.

Dr Bayoumi: I think you could probably look at what the average salary is for family doctors in Ontario and it would be somewhere around that figure.

Mr Kwinter: Which is?

Dr Bayoumi: I don't have the numbers off the top of my head, but $90,000 to $100,000 would be my guess in terms of their take-home pay.

Most doctors don't want to go on salary because it's an easier lifestyle or because it's more money. They want to go on salary because they think they can deliver care to their patients better and there's more stability in the system. Now, essentially you're not paid for seeing patients under certain circumstances, even though you think that they need to be seen. That's not an attractive situation. Where you are not paid for taking care of very sick patients, that encourages a health care system where you only want to have well patients, healthy patients who are easy to care for in your practice. If we're really talking about a health care system designed to deliver care to those who need it the most, salaries make an awful lot of sense.

The Chair: With that, I must bring it to an end. On behalf of the committee, thank you very much for your presentation this afternoon.

CANADIAN NATIONAL INSTITUTE FOR THE BLIND

The Chair: Our next presentation is from the Canadian National Institute for the Blind. I would ask the presenter to come forward and state your name for the record. On behalf of the committee, welcome.

Dr Penny Hartin: My name is Penny Hartin and I'm the executive director of the Canadian National Institute for the Blind, the Ontario division. I'd like to thank you very much for the opportunity to come this afternoon to talk with you about some of the services that CNIB provides and particularly about some of the issues which we face in providing specialized rehabilitation and support services to blind, visually impaired and deaf-blind persons in the province and to ask you for your consideration of those needs as you're going through your process, understanding, of course, that you have a great many priorities that you need to deal with.

I want to tell you a little bit about our organization in just two or three minutes. We are a voluntary, not-for-profit charitable member agency of the United Way. We've been in business since about 1918 as the primary organization that provides specialized services to blind, visually impaired and deaf-blind persons.

The objectives of CNIB are to improve the condition of blind persons, to prevent blindness, and to support services relating to sight enhancement, which basically means to help people make the best possible use of their vision. To dispel some myths that may be out there, the CNIB doesn't serve just people who are totally blind. Totally blind people probably only represent about 10% of the people we work with. The majority of people who receive our services have some degree of usable vision and we like to make our programs available to anyone who feels that the services can help them maximize their independence.

The services are organized specific to the people who require them, so we do provide individualized programs. For people who have low vision, for example, their vision loss is so different that you can't have a one-shoe-fits-all type of solution. We really try to individualize the programs that would be available to individuals, and we also try to offer programs that are related to blindness or vision impairment specifically. So we don't provide housing, for example. For the most part, we don't involve ourselves in recreation and we don't provide homemaker service or that kind of thing, because other community resources are perfectly equipped to provide those services. We would work with those resources to make sure they then know how to ensure that their services can be accessed by people who are blind or visually impaired.

That being said, we focus what we do on programs that people need because they can't see very well, or at all. Those services can include library services; it can be talking books, Braille books, other special format library programs. They can include counselling and referral services. That essentially means counselling around vision loss-what does that mean for the person and his or her family-and then referral either to other programs that we offer or within the community. It includes rehabilitation teaching, which is essentially life skills, home skills services-it could be cooking, grooming, how to manage within your home. It also includes teaching Braille, keyboarding and so on; orientation and mobility, which basically means how you get around safely, in most cases using a white cane; sight enhancement services-how to make the best possible use of the low vision that you have; technical aids services, which can be anything from teaching someone how to use a self-threading needle so that they can sew on their own buttons, showing them how to use a special knife that has a guide on it for cutting in their home, or it can be as complicated as a computer that talks and produces things in Braille. Career counselling and employment services are, once again, those services that people need to help find a career that's going to meet their needs and to get back into the workforce.

These restorative/rehabilitative services, which are funded and provided directly by government to other disability groups, have historically been provided to blind, deaf-blind and visually impaired Ontarians by the CNIB. These services, which enable blind, deaf-blind and visually impaired citizens to learn alternative methods of personal care, self-management, household and daily living skills, alternative Braille or voice access to information and communications processes, movement and travel techniques with cane and/or dog guides etc, are the foundation upon which personal, family, community, school and workplace life are reconstructed. They are essential if a person grappling with severe or total vision loss is to be able to become independent and healthy, with a productive lifestyle.

1730

We also offer some additional services where we can. We have a very large volunteer program. Each of our offices probably has 200 volunteers providing such things as driving support, reading, shopping, personal support, friendly visiting, and so on. We have well over 100 peer support groups around the province. We do have a small holiday centre up on Lake Joseph that people enjoy, intervention services for deaf-blind persons, and we have just begun an early intervention program for children. We do blindness prevention programs primarily through an eye van that travels through northern Ontario providing ophthalmological services to people who live too far from ophthalmologists. We've just introduced some First Nations projects, and we also have some scholarships for young people. Most of those are funded through the Gretzky family. We're fortunate in that support.

To give you a brief synopsis, we serve nearly 50,000 blind, visually impaired and deaf-blind persons across the province through 28 service centres, about 500 staff and about 6,000 volunteers. We're seeing about 12% new clients every year. Our total growth is about 7%. The reason you see such a large growth in new clients is because 75% of our clients are over the age of 60; about 28% are working age and about 6% are young people, children. We do provide service through the whole age range. Because vision loss is very directly linked to the aging process, we have seen our numbers go up dramatically. They have doubled probably in the last 15 years, and we are anticipating that they will double again by the year 2015. That's what the medical information is telling us.

The other interesting fact about the CNIB and the services we provide is that people generally need services throughout their lifetime. They don't just come in, get something that helps them and then leave again. Oftentimes people's vision will change, their circumstances will change, and they'll need help and support throughout their lifetime, so they remain clients throughout their life. The change could be as simple as moving to a new community. Then we'd have to start over again to teach mobility techniques, go into their home and do some adaptive things and that sort of thing.

How we are financed: Our budget for this year is approximately $33 million. That's funded 64% by donations through the private sector: foundations, corporations, and a lot of our own fundraising activities that we take on. We get about 10% that's cogenerated through the United Ways, and the various levels of government would fund about 26% of our total funding. Most of that would be through the Ministry of Health and Long-Term Care. Ten years ago we were receiving about 16% from United Ways, about 33% from levels of government, and we were generating about 49% ourselves. It's not that the government levels or United Way went down. It's just because our client numbers grew so dramatically, about 70% in that time period, and we needed to be able to respond to that. We've been quite successful in doing a lot of activity that's been able to generate our own fundraising in order to meet those demands.

When I compare our organization, though, to other organizations serving disability groups, we are receiving a much lower level of funding. When I talk with my counterparts at other organizations, some of them are receiving 75% of their funds from government, others 50%, and so we do wonder if there is a lower proportion being provided to serving blind, visually impaired and deaf-blind persons.

We also note some serious inequities across the province. I'll give you an example. For our long-term-care funding, we receive about as much money to provide services to 2,000 people in the Niagara area as we do to serve 12,000 people in Toronto. So there are some big inequities both around the province and in terms of what goes to support services for blind and visually impaired people compared to others.

Yes, we have been very successful over the past 10 years in being able to meet our own needs, but I would be concerned that if our client numbers are going to double again by 2015, I don't think we would have the capacity with our staff and volunteer resources to double our own efforts again, without putting so much of our time toward fund development. I always have to balance how much of our staff time should be spent on fund development. They're really good at providing services. If we're already raising 64% ourselves, then I don't think we can increase that percentage a whole lot more without it having an impact on our service programs.

To look at some of our priorities, in addition to what we're currently doing and what is supported through long-term care, there are a couple of other areas that I wanted to make you aware of and I'll just touch on those briefly before I have some time for questions.

The first area is around employment programs. Unemployment, underemployment, job retention and preservation is still a huge issue for blind and visually impaired people. You'd be surprised to know that still about 75% of working-age blind persons continue to be unemployed or underemployed. The sad thing is that hasn't really changed an awful lot in the last 20 years. In speaking with my colleagues from the US, they're experiencing the same kinds of things. Technology is helping a lot, but there are still a lot of barriers out there and a lot of barriers around attitudes. I'll just take one minute to give you an example that I think will tell you a lot.

I just had a call recently from a young woman who was a professional secretary, worked for many years and was very competent. She got a job in a health care setting in the Ottawa area. She went through all of the processes that you do to get a job and she was hired; everything was fine. The first day at work somebody saw her looking-you know, like I do-kind of close at her paper and called human resources and said, "We have a blind person here." They called her up to their office and sent her home that first day, without even finding out what the vision impairment meant and whether or not she could do that job. She wasn't providing direct health care to individuals; it was in an administrative setting.

Unfortunately those attitudes are still there. There's a lot of work that we have to do. There's a lot of work that we have to do with other community resources so that they can help blind persons find jobs as well. There are other resources out there and we work closely with them, but often they don't know what accommodations are needed. For a blind person, unlike someone who-and I don't like to oversimplify things, but if you compare finding a job for a blind person to someone who uses a wheelchair, with mobility impairments their accommodation difficulties are often resolved. Their work station is made accessible once they get into their work site. For a blind person that's not the issue. You can usually get into the building, get to your work site. The accommodation problems only begin then, because how do you make sure that they have access to the information? There are lots of solutions, but we need to help people find those solutions.

What we are looking to do is establish about four or five centres across the province, regionally based, that will provide employment training and technology training for individuals so that they can have a much better chance of finding employment. We're estimating at this point that it will probably cost between half a million and a million dollars, I would think, to get that kind of thing established.

We also have concerns around children's services. Once again, we've felt for many years that services to blind children can be provided well in the community. Once they start school that's certainly the case through the education system. However, before they get to school, the early intervention and development programs that exist just don't see enough blind children to gain the expertise. So over the last few years they and the parents have told us that CNIB needs to get back involved in that. We received funding from the Trillium Foundation a year ago to establish two pilot projects. They're going extremely well, and we want to roll that out across the province now.

1740

We are putting in a proposal to Children First and Last, the children's secretariat program, for a challenge grant and we're hoping with that to be able to expand the program to 10 sites across the province so that all blind children who need that specialized service early on will get it. We estimate that whole program will cost about $1 million to roll it out across the province and we're optimistic that we will receive some of the funding through the new children's secretariat to help with that.

Library and information services: I'm sure you're all aware that CNIB does have specialized library services. That doesn't just mean Braille and talking books, by the way. With the growth of information, we've tried to keep pace with that as best we can, so we have a large children's collection. We make sure that they can learn to read too. We even operate summer reading clubs for children. We just do it through the mail. We have newspapers by phone now, so someone can call our number and receive the full text of 14 newspapers from across the country now, whereas before that wasn't possible. They can also get them on our Web site if they want. They can access our catalogue of talking and Braille books, or whatever, through the Internet, and we're setting up other programs so that they can access magazines and other information you probably just take for granted that blind people don't normally have access to. So we're working hard to make all of that available.

That service, which is currently costing us in Ontario about $2.5 million dollars and we project will cost probably $5 million over the next several years because we have to digitalize the whole service-we can't get cassettes any more so we have to computerize the whole way that we offer the service. That service is not funded at all through government support. You don't need to feel so badly; the rest of Canada doesn't either. In fact, we're the only G7 country in the world that does not provide public assistance to specialized library services for blind, visually impaired and other print-handicapped people. We are definitely hoping that is something you would consider as you look at library service budgets and so on. We know that with the aging population, seniors are more sophisticated in their desire for information, and while about 25% of our present clients use the library, we expect that this number will grow dramatically and that they will want the other aspects of library service as well so that they be informed.

OHIP coverage for low vision: You may not be aware that at present low-vision assessments are not covered under the OHIP program. That means that many individuals who could really benefit from the use of low-vision aids are simply not able to afford the assessments. The doctors charge about $75 for them. They can see their optometrist or their ophthalmologist for types of pathology or eye disease, but the low-vision assessments that determine what kind of low-vision aids might be helpful for the person to use are not funded at this point in time. We would ask you to consider making that service available for persons. The low-vision assessments can make a huge difference.

Personally, I have low vision. I probably use about 25 aids around my home for different kinds of things, but if the assessments weren't available then I probably wouldn't have the same access to information or to use the tools that really are available and that can make a huge difference to people.

There's also a tax on audio books that we'd like to talk with you about. As you know, print books are not subject to provincial sales tax but for some reason audio books are. I guess they were always considered to be entertainment, but in fact many people do learn using audio books, and not just people who are CNIB clients. Certainly we do use the audio books and do purchase them from the stores, but lots of new Canadians who are learning English find the audio books very helpful. People who are print-handicapped in other ways-perhaps they have a perceptual difficulty-clearly use audio books. Many commuters now, as you know, also use audio books as they're travelling to and from work. They very much help to improve literacy and to improve the learning of our language. So I'd really encourage you to consider eliminating the provincial sales tax on the audio books that are available.

The last area that I wanted to mention was intervention services for deaf-blind persons. People who are deaf-blind need a very special kind of service beyond all the rehabilitation kinds of programs that I talked about earlier, the Braille and the white cane travel and so on. They need those, but in addition they need special services to interpret their environment for them. It goes beyond interpreter services that a deaf person needs. A deaf person needs somebody to interpret what you say to them and then what you're saying back to that person you're talking with. For someone who is an intervener, they don't necessarily use American Sign Language. They may have to use a print alphabet on the person's hand. They also not only need to tell you what the person is saying and interpret that information back and forth; they also need to give you information about the environment.

We've had interveners who've actually gone with our clients for surgery and have intervened for that person throughout surgery, to tell the person what was happening as well as what the person was saying to them. That's what the service can mean.

It can also mean, if someone is going shopping, to explain to somebody that there are 10 different kinds of Tide on the store shelf, because the person wouldn't necessarily know that. It helps them to determine what type of Tide would probably meet the person's needs, whether it's liquid or whatever it might be, because when you can't see or hear, you not only need to know what somebody is saying to you; you need to have the environment around you interpreted as well. That's what interveners do.

The problem right now is that they're only funded for about three hours a week of intervention service, and generally that time has to be used for doctors' appointments or appointments with lawyers or whatever. The person probably isn't going to get the assistance maybe with shopping, maybe participating in a recreational activity. It might even be visiting family or friends, because sometimes the communication methods are so complex that not everyone in a person's family or circle of friends may know that.

We recommend that people really should have about 15 hours a week. That's what most deaf-blind people feel would be helpful for them.

There are some inequities within the province as well. There are some individuals who are in group home settings now. Some of them are receiving up to 24 hours a day of intervention. We don't believe that's really necessary, but there are a lot of inequities. There's a whole group of people who are really only getting two or three hours a week, and it's just not enough for any kind of independence for them.

Those were the major areas I wanted to present to you this afternoon. Clearly the needs of blind, visually impaired and deaf-blind persons will increase over time, essentially due to the aging population. It's a fact of life. As we get older, our eyes don't work as well. There is not a cure for macular degeneration, which is the leading cause of blindness, nor is one expected on the horizon within any number of years that we can plan for at this point in time.

1750

CNIB believes in strong partnerships with the community and with the government to help us provide the specialized services to blind and visually impaired people. I haven't presented all the needs today. I've tried to focus on what I think to be most urgent and what I think has the potential to make a real difference in enhancing independence for persons who are blind, visually impaired and deaf-blind, to increase their independence and their self-sufficiency.

I also have presented some issues that will help to respond to some of the inequities that currently exist within the province, both among disabled groups themselves and also among some regions of the province. CNIB has a philosophy of service equity. We firmly believe that services should be available to people regardless of where they live. We have service centres and other programs around the province to help make that happen, but it's a challenge when there are such inequities within some of the funding pockets. We clearly do have areas that are much better served than others.

I want to thank you very much for your interest and for taking the time to listen to me this afternoon and for considering our requests. Please be assured that we want to work with you and want to work in partnership, as we all work together to make life better for blind, visually impaired and deaf-blind people in Ontario.

Thank you. If you do have any questions, I'd be happy to respond in any way that I can.

The Chair: Thank you very much for the presentation. I'll allow two minutes per caucus. I'll start with the government side.

Mrs Molinari: Thank you very much for your presentation. It's quite comprehensive and you have a lot of recommendations. When you say you haven't highlighted or you haven't told us all of the issues around the deaf-blind, then obviously there's a lot more. You have a lot here already.

I don't know if you're aware of the recent private member's bill that was passed in the Legislature, Bill 125. David Young, who's the MPP for Willowdale and is now the Attorney General, introduced a private member's bill that would declare June deaf-blind awareness month.

Dr Hartin: Wonderful.

Mrs Molinari: He has been in contact with the Rotary Cheshire Home, which is in his riding, so he speaks highly in the Legislature about that quite often.

Dr Hartin: They run a good program.

Mrs Molinari: Yes, it's a wonderful program. The one question that I do have is-I think I heard you say that Canada is the only G7 country that doesn't provide talking services for the deaf-blind.

Dr Hartin: They don't fund the specialized library services for blind, visually impaired or deaf-blind.

Mrs Molinari: What would that entail?

Dr Hartin: It would entail funding the production of alternate-format materials as well as assisting with the distribution. The public libraries have a good collection of large-print books. They do a good job with that, but they have very, very few talking books, and I don't know of any public libraries that have any Braille.

The Chair: Mr Kwinter.

Mr Kwinter: I'm totally supportive of everything that you do. The issue about talking books and the sales tax should be easy to resolve. I raised an issue in the House some time ago about computer books, that if they didn't have a computer disk in them, they didn't have to pay sales tax, if they did have the computer disk, they did, which made no sense, because the book is useless without the disk, because it teaches you how to use the computer. We got that resolved.

I think that can be resolved, so that those people who are visually impaired or blind can have a card that says, "I am blind, and as a result I am exempt from paying the sales tax on those books." I think that's something we should be recommending.

I just want to tell you very quickly: I've had contact with two blind people, both of them absolutely outstanding. It just shows that if they get the support and if they get the ability to reach their maximum potential, they can.

One of them, whom many of us know, is David Lepofsky. I used to own a children's summer camp and David Lepofsky came to me as a little boy, totally blind. He was able to function in the camp program; he did everything. He wound up as a lawyer and he's now a major advocate for the disabled.

Another person whom you may know of, because I think at one time he was the chairman of your organization, was Edward Dunlop. Edward Dunlop was a former member of Parliament, a war hero who was the commander-in-chief of the Queen's Own Rifles. One of his men dropped a hand grenade. He went to get it, picked it up. It blew off a couple of his fingers and blinded him.

He came back to become a member of Parliament, a cabinet minister. I worked on his campaigns. He became the founding president of the Toronto Sun. Just because he was blind, it didn't in any way take away from his particular abilities.

I applaud David Young for this blindness and hearing-impaired awareness week, because there's a stigma. If someone sees someone who is blind, they immediately think that not only has he lost his sight but he's lost everything else. I think that's a real problem and it's a problem that we have to address. There are resources, when I talk about human resources, people who happen to have an impairment but they can make a very useful contribution to our society. I congratulate you for your efforts.

Mr Christopherson: Thank you very much for your presentation. Referring to one of your earlier pages where you compare the percentage of your income that you now have to raise yourself compared to what the government gives and compared to before, it's pretty clear that it's going in a direction that's making your life more and more difficult.

You make note that if you compare it to other rehab agencies, you're way out of whack. What about other provinces? Is it the same? Are the trend lines going the same way in other provinces?

Dr Hartin: They vary in other provinces. In some provinces the funding support is closer to 50%. On average across the country it's around a third, around 30%. BC is terrible. That's the only way to-it's, I don't know, 10%, 12%. It's astonishingly low, which is obviously a real problem to raise sufficient funds. So that brings the average down.

I would say traditionally we are lower than other disability groups, I suppose because CNIB has been around for a long time. We have been successful in raising the funds to support the service programs. The worry we have, though, with the increasing number of people coming, is, would we be able to sustain that in the long term and really be able to respond to people's needs? I would worry that we probably wouldn't. That will be the case in other provinces that don't have the level of service that we have here in Ontario either, because they simply haven't been able to develop the capacity to raise the money they need. So I really worry about the services in other parts of the country.

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

Dr Hartin: Thank you very much for your time.

Mr Galt: Mr Chair, on a point of order: Just for information purposes, I have the report that I requested the other day, when the OSSTF made a presentation. I'm just wondering, will this appear in the official record? There's a significant discrepancy between the figures they gave us and the figures that are in here. It's important for the record that it appear. It's more than 50% greater than they put in their report.

The Chair: I'm told that it does not appear in Hansard, but it will appear in the committee minutes.

Mr Galt: It says here that it's 50% more. Thank you very much.

Mr O'Toole: I would like to move that it appear in the report.

The Chair: No, it does automatically.

Mr O'Toole: Great.

Mr Christopherson: On a point of order: I wonder if, out of courtesy, since it affects one of the presenters, we might have the clerk forward the results that came from research to OSSTF, I think it was.

Mr Arnott: It was Earl Manners.

Mr Christopherson: Just to give them a chance, because they may want to respond to the response.

The Chair: I would think that's a fair request.

Mr O'Toole: They may want to retract.

Mr Christopherson: No, John, not because they want to retract.

Interjections.

Mr Christopherson: At least have the trial before you hang them, John.

The Chair: With that, I'll bring the meeting to a conclusion and we'll adjourn until tomorrow morning at 10 o'clock.

The committee adjourned at 1800.

Committee Transcripts
Contact an MPP
Participation in Committees
Watch the Legislature in Action
Use of Assembly Grounds
Petitions