Finance Committee on Oct. 26th, 2006

[Rod Seiling]

We think in Toronto that investment in tourism is an investment with immediate returns. For example, a $25 million increase in tourism marketing will give you an immediate increase in tourism demand of somewhere between three-quarters of a billion dollars to over $1 billion. Return investment is 28% to 54%, and your increased federal tax revenue is somewhere between $104 million to $200 million.

So the returns are immediate, and they will pay you and allow you to invest in your core priorities.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Mr. Seiling, and thank you, Ms. Wasylycia-Leis.

The next “demandante”, as the chair would normally say--sorry about that--will be John McKay.

We have enough time, so we're going to give five minutes to Mr. McKay, Mr. Dykstra, Mr. Savage, Mr. Del Mastro, and Ms. Ablonczy.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Thank you, Chair.

Again, Toronto scores big because of the quality of its presentations.

I feel sorry for Mr. Seiling. If he were still playing hockey, I think he'd be riding the bench. As I count your plus-minus, you're at least minus four at this point. You've lost your funding, the GST rebate got cancelled, museums got severely downgraded even though, as another witness told us, 60% of tourists go to museums, and your China program is going absolutely nowhere. I'm not quite sure what this government doesn't like about tourism, but they seem to be well on their way to pretty well killing a growth industry.

I wanted to, however, question the folks from the Greater Kitchener Waterloo Chamber of Commerce. You're pretty categorical--yours was probably one of the more categorical presentations--with respect to the 1% reduction in GST. You question whether it was the correct method to decrease overall personal tax burdens, and you go on to recommend that basically consumption taxes are the last thing you'd cut. You'd prefer to cut CCAs, CITs, BITs--pretty well anything but consumption taxes.

For the benefit of members opposite, can you expand on that?

[Linda Korgemets]

Certainly.

This really comes from a line of thought that when you look at income taxes versus consumption taxes, consumption taxes are good taxes and income taxes are bad taxes. I'd have to be a theoretical tax person to explain that better to you. I'm only repeating the published tax efficiency of both those types of taxes.

I said we question it, but we don't know. The party line--not any of the parties here--in tax theory is that consumption taxes are the way to go, and income taxes are not, if you're trying to raise revenue.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Exactly. Any tax theorist knows that our mix of taxes is overbalanced to personal and underbalanced to consumption. The only economist in Canada who thinks that's wrong is the Prime Minister of Canada.

I'd also like to talk to you, Mr. Kaldeway, about the GTAA and particularly the problems at Pearson. We've talked about this before, and I suspect we'll talk about it again. As far as I know, no airport authority was tortured when entering into these agreements, and up to now they have enjoyed a relatively good ride on rent. But now it's getting a little expensive.

I appreciate that Pearson's problems are probably unique in the nation. If the government picked up your recommendation, the cost of carrying debt as a result of necessary investments in airport infrastructure is not considered revenue. How would that affect the formula for Pearson?

[John Kaldeway]

Thank you for the opportunity to explain that.

Let me go back to an earlier comment you made about us not having been forced to sign a deal--and you're absolutely right. But quite frankly, back in 1994-95, when the airport authority was first formed, there was a very intense negotiation with the officials of Transport Canada to work through a transfer process that had two characteristics that are a little different from today, I think.

One of them is the nature of the aviation industry.The profitableness, if you will, of the aviation industry in those days was somewhat different from what it became in later years, especially in recent years. The other thing is, there was a very strong push on the part of the community-based organizations here to have this deal done, and the deal that was in front of us was really the only deal that was available or it wasn't going to get done.

The expectation was that to do the deal—in the first few years the rent was not so onerous that it was going to be as difficult as it is today, with the full expectation on the part of the board at the time that there would be an opportunity to cut it in future years. And now is those future years.

The other part of your question was, how would this make a major difference? The rent regime that was announced last year changes the rent from a passenger-based formula to a revenue-based formula. Because our costs have had to be so much higher than many other airports, because of the massive building we've had to do, the revenue we generate to cover that is also much higher. Therefore, we end up paying quite a lot more rent per capita than anyone else does.

The formula we proposed provides a much more equitable solution to that, so that by 2010, rather than paying two-thirds of all of the country's rent--which we will do under this formula--the change to the formula that we have suggested would bring that down to roughly 40%, which is closer to about one-third of the nation's traffic that we have, and therefore makes it more equitable.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Mr. McKay.

Mr. Dykstra for five minutes.

[Rick Dykstra, Conservative, St. Catharines, ON]

Thank you, Mr. Chair.

I think we're all making our points here this afternoon, and it must be because it's one of our last sessions.

Ms. Wasylycia-Leis continues to talk about the reduction in expenditures that we made in the last month. One of the things she doesn't refer to is an over 5% increase in this year's spending and this year's budget allocated to a number of priorities, including post-secondary education, affordable housing, overseas development assistance, improving a public transit system, and $16.5 billion in infrastructure. This budget obviously goes in the right way, and if Bill C-48 wasn't bad in terms of where the money was going, obviously you would support the increase in expenditures that we had to do.

I guess what I'm trying to say is that we actually find now that even though we're finding ways to cut taxes and making sure working families have the ability to keep a little more of the income they earn, we actually have some extra money--so far, at least--in this year's budget. Obviously, positive things are happening in the country. So I hope you're not all thinking that because of what you're hearing across the way, it's doom and gloom; it's actually very positive.

Mr. Seiling, I look forward to the two hours that we're going to actually spend reviewing the issue you've put forward. It's something that is obviously going to get the finance committee's attention, and I appreciate that.

I know Mr. McCallum was responsible, as he sort of headed up the expenditure review for the Liberal Party and the Liberal government over the last number of years, and he continues to talk about the $11 billion in savings that they found. We've often been trying to see where it was. Well, I found it. At least, I found some of it. The $100 million you received in 2001, you've actually been cut by 25%. Mr. McKay is absolutely right when he says you've been hit from all sides. The thing that interests me about this is that that cut is directly to the services you deliver. I understand the reduction we made is a reduction and it has an indirect impact on you. But the fact that you've been cut by 25% since 2001, I think speaks volumes to the investment, or at least the consideration that the former government gave to tourism in this country. Could you comment?

[Rod Seiling]

Certainly, we're concerned that government simply hasn't been aware of the economic value of tourism. When you take a look at the GDP, and if you look at the size of our...we are larger than farming, hunting, and agriculture, all those put together. So it speaks volumes about the misperception of the value of the industry. We're simply saying it's time that governments need to take....

The difference between tourism and a manufacturing plant is that when a manufacturing plant closes and 500,000 jobs disappear, that's big news. What's happening to our industry, because it's made up mostly of small businesses, we lose two jobs here, two there. This is an industry that goes from coast to coast, from the 49th parallel right up to the Northwest Territories, to our indigenous people, so it's important, whether you come from a rural or an urban riding. It hits home everywhere.

We're very appreciative that you're talking about it, and maybe you'll do something about it.

[Rick Dykstra, Conservative, St. Catharines, ON]

The good thing about this government is that they're prepared to listen. Messrs. McCallum, McKay, and Savage were driving the getaway car. We are going to work with you on that.

The other point is on debt reduction. I'd be interested to get your thoughts on this. We had David Dodge in last week, and he spoke to the issue of debt reduction and the commitment we should have to it. It strengthens the economy and produces an additional $660 million in revenue, which could be put in the next budget. I'm wondering if you could elaborate a little on where the chamber thinks we should go on this.

[Linda Korgemets]

Debt reduction is still a very important issue for us, because we're looking at demographics. We look around the room, and we look at who might be retiring, going out five to ten years. We feel we need to get the interest expense of this government down. It's been at about $40 billion. That's when we're raising $210 billion in revenue. It's a huge amount, and if we could get our interest expense down, we'd have a lot more flexibility in spending money on tourism and health care. We believe we should reduce the debt when we can, when times are good, so that when times aren't good, we're not constrained by the interest expense.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Ms. Korgemets.

Mr. Savage.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

First of all, I have a comment for Mr. Seiling. All the parties have tried to get you to say awkward things about everybody else. I just want to let you know you stickhandle very well for a defenceman.

I want to talk to Dr. Rossant about CIHR. I used to be on the board before I was elected at the IWK in Halifax, and I'm a huge fan of CIHR. I also had an involvement with a non-profit charity, and about ten years ago we used to be asked to fund a lot of research, because the old MRC was almost out of the business.

I think one of the most significant things that we've done as a nation in the last seven or eight years is to re-invest in research and reverse the brain drain. As you said, with research you can't just go up and down. You don't keep quality people if you do that. We have to keep what we have now and keep ramping up, because there are more and more people applying for grants.

Is there an institute of pediatric health within CIHR? Is that one of the thirteen institutes?

[Janet Rossant]

Yes, one of the thirteen institutes is the Institute of Human Development, Child and Youth Health. It's very important.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

You mentioned work on asthma. Nova Scotia is alleged to have the highest incidence of asthma in the country, so that matters to me. But what I really like about CIHR is that we've gone beyond basic biomedical, clinical research to some broader work on populations and health systems. Your point is that the existing money is good, but it shouldn't come out of CIHR.

[Janet Rossant]

Yes, CIHR has invested in what it calls the four pillars of health research—discovery, sort of biomedical research; applied research; clinical research; and applications to the population and the health system. They are trying to find out how to deliver the results, how to get the return on investment from the clinical work into the health of Canadians.

There's enormous expansion, and it's about ready to deliver on those promises. The CIHR, the institutes, are ready when you have an issue. So child health is an institute that can address that. If you're looking at respiratory problems and asthma, there's an institute of lung diseases, so you're ready to look at those. But there has to be a continued growth. We're not asking for an enormous increase. We're just asking that the ramped-up projects be continued. Otherwise, we will lose the investment.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

In essence, if you don't ramp it up, the people who are here will go where the research funding is available, to the NIH perhaps.

[Janet Rossant]

That's right. It's the young people who've come back because of the improved environment here that we will lose again.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

On indirect costs, the Heart and Stroke Foundation, which I have an association with, came to me last year when our economic update moved to 40% in indirect costs. They said they were getting burned. They used to fund the research that nobody else wanted to do, but last year they were having a hard time getting researchers, because we don't do the 40% of indirect costs. You are affected a little by that yourself—working in a hospital as opposed to a university.

[Janet Rossant]

That's right. We only get indirect costs on the federal grants, but we really recognize the importance of voluntary agencies as well. There has to be a balance between the two.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

Great work. Thank you very much.

I just have a quick question for Art and Linda. I really enjoyed your presentation for a lot of the reasons that have been pointed out.

You mentioned something to the effect of the fiscal imbalance. We were in Quebec yesterday, and we heard about the fiscal imbalance once or twice or a thousand times. It's very important to the people of Quebec. It's important across the country. Whether you believe in it or not, the whole issue of equalization certainly matters.

Yesterday we heard that there shouldn't be piecemeal arrangements made on equalization. In fact, they were very much against the Atlantic accord. I come from Nova Scotia. We believe in the Atlantic accord. We were in Newfoundland earlier this week, where they said that, as a basis, nobody should be hurt. In fact, whatever we do with equalization, no province should get less revenue than they get now, and I wonder if you have an opinion on that.

[Linda Korgemets]

I have a definite opinion. I don't like piecemeal. I've never liked piecemeal. It's like a bandage approach to something that's broken. We all recognize that equalization is broken. I think it's been in play for maybe forty years, since the seventies, although I'm not quite sure when it all came in. But obviously something that old can't work today, based on the country that we are and the federation that we are.

Our chamber doesn't have a magic bullet or a quick fix, but, boy, do we ever want it looked at seriously. It's a very complex problem, and we can't go at it on a piecemeal basis. We really need a solution, and that's going to take time, even though we say in our submission that we want this national gap thing fixed in a year. We want it immediately tabled, so we're concerned that it's not moving forward fast enough.

I actually thought we were going to hear something from the federal government this fall. I know the fall's still happening out there, but I was expecting an announcement of some description in the last month and I haven't heard anything.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Ms. Korgemets.

Mr. Del Mastro, for five minutes.

[Dean Del Mastro, Conservative, Peterborough, ON]

Thank you, Mr. Chair.

Ms. Rossant, first of all, you touched a little bit on asthma in children. In fact, we have a bit of an asthma epidemic across all age groups, and breathing problems. The Lung Association certainly talked about that. One of the big causes of this is smog, which is low, ground-lying pollution. Two things go into smog: nitric oxide and hydrocarbons, which are essentially unburnt fuels. They combine into something called nitrogen dioxide.

The clean air plan specifically is set out to bring in regulations to reduce smog-causing pollutants, something not at all addressed in the Kyoto plan. Is that a good idea?

[Janet Rossant]

I think that is an important component. Addressing issues of air quality is important. However, while that's part of what is causing an epidemic of asthma, it may not be the only thing. We need to understand more about the causes, and also how to really control asthma in the population.