Proceedings of the Standing Senate Committee on
Social Affairs,
Science and Technology
Issue 20 - Evidence, November 24, 1998
OTTAWA, Tuesday, November 24, 1998
The Standing Senate Committee on Social Affairs, Science and Technology met this day at 10:00 a.m. to consider Bill S-10, to amend the Excise Tax Act.
Senator Lowell Murray (Chairman) in the Chair.
[English]
The Chairman: Colleagues, we have before us today Bill S-10, an act to amend the Excise Tax Act. This bill, as you will recall, is Senator Di Nino's private member's bill, which would have the effect of removing the GST on reading materials. Allow me to put a bit of history on the record before we begin. This bill received first reading in the Senate on December 3, 1997. Second reading debate took place in February and March. The bill received second reading on March 19 and was referred to this committee. The committee met four times in May and June. We heard 16 witnesses, including the sponsor and representatives of various organizations, including government departments. Eventually, on June 3, we reported the bill to the Senate without amendment.
The third reading debate took place last June, at which time Senator Maheu proposed an amendment in three parts that would have had the effect of maintaining the GST on any reading material that contains an age restriction imposed by law on its sale, purchase or viewing; on any reading material that is either obscene within the meaning of section 163 of the Criminal Code, or of a pornographic nature; or on any reading material that contains more than 5 per cent advertising. That amendment was before the Senate. Our friend Senator Di Nino indicated that he accepted the first two parts of Senator Maheu's amendment, but disagreed with that part of her amendment that would have maintained the GST on reading material that contains more than 5 per cent advertising. Senator Di Nino presented a sub-amendment to that effect in the Senate, whereupon the government, speaking through the deputy leader of the government in the Senate, Senator Carstairs, successfully proposed to send the whole package back to this committee for our further consideration.
What is before the committee this morning -- and will be for a couple of days -- is the amendment in three parts proposed by Senator Maheu and the sub-amendment proposed by Senator Di Nino.
[Translation]
As usual, we have 90 minutes at our disposal this morning, and we will be sharing out this time equally between three witnesses, the first of whom is Mr. Yvon Goulet, Assistant Chief Statistician, Communications and Operations, Statistics Canada. Mr. Goulet, you have the floor.
[English]
Mr. Yvon Goulet, Assistant Chief Statistician, Communications and Operations, Statistics Canada: Mr. Chairman, I am very pleased to have this opportunity to speak to you today and answer your questions.
[Translation]
The point of concern of the committee is the possible effect of amending the Excise Tax Act as proposed in Bill S-10 on the sales of Statistics Canada publications in particular. In 1997-98, Statistics Canada published 210 titles and sold for $2.5 million worth of publications. We expect that the numbers for 1998-99 will be in line with those of 1997-98. We do not think that the abolition of the excise tax on the sales of publications will have any effect on Statistics Canada's publication program. The reasons are the following:
[English]
A review of our clientele reveals that approximately 43 per cent of our sales are to businesses, 29 per cent to various levels of governments, 9 per cent to students and the academic community, and 19 per cent to other people not specified above.
We do not think that the sales of publications to business and to various levels of government will be affected by the proposed tax measures. The academic community, including students at all levels, teachers and researchers, already has access free of charge or at reduced cost to Statistics Canada information through various means, such as:
[Translation]
We have a system called ESTAT, which is a CD-ROM of statistics and software available to secondary schools clientele. The depository libraries system offers users free access to all of our publications.
We also have a data liberation initiative which gives access to all of our data to students as well as teachers and researchers at the college and university level.
Finally, we have a discount program of 30 per cent for students and teachers who want their own copies of publications.
[English]
All these access mechanisms explain why only 9 per cent of our publications are purchased by them. This is not necessarily representative of the use they make of them, but because they have free access by other means, they do not have to purchase a lot.
Finally, a last point worth mentioning is that market research with our users has revealed their preferences to get their statistical information electronically. Consequently, the trend of reduced sales of publications on printed medium is likely to intensify.
[Translation]
That, in brief, is our assessment of the effect of the proposed tax measure on the sales of Statistics Canada publications.
[English]
I am pleased to answer any questions you may have on the subject.
Senator Di Nino: Welcome, Mr. Goulet, bonjour. Let me ask you a question just for clarity and for the purposes of the record. What kinds of publications are we talking about here?
Mr. Goulet: We have basically two types of publications at Statistics Canada. A certain number of them are highly specialized and very narrow in scope, like a publication on the production of wheat, for example, or on dairy products or motor vehicle sales. They appeal to a specialized clientele, either producers or people requiring that information for their work.
Other publications are more like compendiums. They are broader in nature and I would say of broader general interest, like The Canadian Social Trend, for example, which discusses social issues in Canadian society. Consequently, it appeals to a broader clientele. We have similar economic compendiums that review the economy, the principle indicators, and put them all together. These are more generic in style and in coverage, therefore, they appeal to a broader clientele. Those are the two types.
Obviously, the ones that are highly specialized have a low circulation. The ones that are broader in scope are what we call our flagship publications. They have a much broader audience.
Senator Di Nino: Generally, the latter ones are used by institutions or other organizations, which then disseminate the information. Would that be principally correct?
Mr. Goulet: Are you addressing the broader type?
Senator Di Nino: Yes, I am.
Mr. Goulet: The compendium type publications are redistributed. Obviously, because of their broad coverage, they will be of public interest. For example, if you are analyzing the economy, then you will get our title that deals broadly with the economy and you will have information about unemployment, the cost of living, production and productivity. Therefore, if you are working in a financial institution, that publication will appeal to you.
If you are in a social type of organization, then The Canadian Social Trend will appeal to you.
Senator Di Nino: Would it be fair to say that most Canadians would get this information through publications such as magazines and newspapers, which would disseminate most of that? Would you agree with that?
Mr. Goulet: I would agree that, in fact, most Canadians are in contact with our information through the newspaper.
Senator Di Nino: Would I also be correct in assuming that most of your publications would not be particularly interesting or even useful in a direct sense to the average Canadian, other than as disseminated and analyzed through newspapers and magazines and the like?
Mr. Goulet: That is it. You are completely correct. We release The Daily every day. In it, we feature the main points of interest in our publications and these highlights are always used extensively by newspapers to write articles, either in the financial pages or in the other sections of the newspaper. Canadians get the information that we release through newspapers and magazines, for the most part.
The Chairman: Mr. Goulet, do you have any statistics that would be relevant for our purposes to indicate whether there has been a drop-off in sales of your publication in the period prior to the imposition of the GST, which I think was April 1, 1991, and the period since that time?
Mr. Goulet: I was anticipating that question, therefore, I examined the number yesterday. We perceived no reductions in sales when the tax was introduced. We see a trend downward in the sales, but that is not related to the GST but rather to the fact that people are more interested in receiving their information electronically. People who use information in their work prefer to have it electronically because they can just load it on their computers and continue working with it. Otherwise, they have to re-enter the data.
The Chairman: You are testifying that it is a matter of indifference to you whether the GST is on or off your material.
Mr. Goulet: Yes.
The Chairman: So far as Statistics Canada is concerned, just for the record, I presume that nothing you publish contains an age restriction imposed by law on its sale, purchase or viewing?
Mr. Goulet: No.
The Chairman: You do not put out material that is obscene within the meaning of section 163 of the Criminal Code?
Mr. Goulet: Not that I am aware of.
The Chairman: You do not sell any advertising in any of your publications?
Mr. Goulet: We do not sell advertising. We advertise our own publications. It is cross-advertising where we offer other titles to our clients.
The Chairman: In the last fiscal year for which there are statistics available, you sold about $2.5 million worth of publications, of which you remitted 7 per cent to the Department of Finance.
Mr. Goulet: Yes.
Senator LeBreton: I have a follow-up question on that point. In other words, your clientele is a select clientele, many of whom get their material through the electronic means. Therefore, there would not have been any shift one way or the other with the implementation of the GST. You have a select clientele. They are going to get the material, and do get the material, whether the GST is there or not.
Mr. Goulet: We see that businesses buy books. I do not have a breakdown by size of business, but if you peruse the list of buyers' names, you will see that there are large corporations. Therefore, the fact that there is a $2 or $3 tax on a book is will not stop, for example, the Royal Bank from buying a book if they need it. Gradually, we see that increasingly businesses are moving to organize themselves to receive the information electronically. We see that movement accelerating. Consequently, when they will receive the information electronically, they will have to pay the GST on it because it is currently being taxed.
Senator LeBreton: In your other data-gathering modes and statistics, do you have any statistics that would indicate that the GST has affected the publishing industry or the ability of Canadians to purchase books through the implementation of the GST?
Mr. Goulet: Unfortunately, I cannot ascertain that. In the consumer expenditure survey that examines household expenditure, we see that people who attend school consume more written material because they have to buy textbooks and books. I cannot conclude from that survey that the GST prevents them from buying what they need.
The Chairman: We have a witness coming to this committee this morning from Chapters. We have copies of his presentation. He says that the bookselling industry in general in 1991 suffered an estimated 10 per cent drop in sales attributable to placing the GST on reading materials. He refers to a study done by Coopers & Lybrand in 1986 for the Federal Communications Department to investigate the relationship between book prices and consumer resistance. Extending the findings of this study, he states that the 7 per cent GST may have caused closer to a 15 to 20 per cent drop in book sales. I presume that Statistics Canada is in a position to verify or refute those kinds of numbers.
Mr. Goulet: I will have to verify that. I do not have the numbers offhand. I cannot quote numbers. We have a survey of the book industry, therefore, we could certainly come up with numbers. I can probably supply them to this committee, if they will be useful.
The Chairman: I think the committee will be most interested in receiving the official findings, the official verdict, of Statistics Canada, which, as we all know, is a highly reputable agency and in which Canadians, for good reason, have a great deal of confidence. We would like to have the material that you have on that very subject.
Senator LeBreton: That was my point. I would like to track it through that period and see if there was any decline, to see if we can definitively attribute it to the implementation of the GST or whatever.
[Translation]
Senator Lavoie-Roux: On the first page of your brief, you give the profile of your clientele. I see that the various levels of government account for 29 per cent of your clientele. They pay GST?
Mr. Goulet: Yes.
Senator Lavoie-Roux: Why impose a cost to one level of government who will then turn around and give it to another level? In the end, it is money that just goes around in circles. What is the aim of that? It seems to me there should be no tax in these instances.
Mr. Goulet: You are asking me for an opinion. That goes beyond my duties. I have opinions as a Canadian citizen.
Senator Lavoie-Roux: That is what I would like to have.
Mr. Goulet: I imagine that in the interest of simplicity in the operation of the tax, it was found to be preferable to apply it generally rather than to say that the tax could be eliminated depending on who is doing the buying. I imagine that in fact that is what is behind the application of this tax. It is true that if the Finance Minister buys a book in my shop, I charge him the GST, I hand the money over to the Revenue Department and the Finance Department counts it as being tax revenue.
Senator Lavoie-Roux: In fact it creates accounting work that isn't necessary, that could be avoided and that has a certain cost attached to it.
Mr. Goulet: Yes, undeniably.
Senator Murray: The time set aside for this witness is now up. Mr. Goulet, on behalf of the committee, I wish to thank you for your appearance here today.
Mr. Goulet: It will be a pleasure for me to forward to the committee the statistics you asked me for.
[English]
The Chairman: For the next 30 minutes, colleagues, we will hear from the Canadian Federation of Students, whose spokesperson is Denise Doherty-Delorme. Good morning, Ms Doherty-Delorme. Welcome to this committee. We will hear your opening presentation and then I will invite senators to enter into discussion and ask questions. Please proceed.
Ms Denise Doherty-Delorme, Researcher, Canadian Federation of Students: The Canadian Federation of Students represents over 400,000 students across the country in both French and English post-secondary institutions. We have presented many times on this subject. I think it is known to all of you where we stand. Here we are again discussing a subject of great concern to students, which is the taxation of all reading materials. Bill S-10 received its first reading over a year ago and we are still discussing it. The federation last made a presentation in May of this year. The federation has not changed its simple plea to remove all the GST on all reading materials, especially on textbooks.
As you know, post-secondary students purchase their own textbooks and other learning materials at considerable expense. Last week, I requested the members of the federation to submit to me how much they spent on average on textbooks in a year. It varied between $300 and $2,700. When you add the GST on to that latter figure, it is almost $200 worth of GST.
That $200 to a student on a budget represents two months of public transportation, a couple weeks' worth of food, or foregoing other textbooks that are necessary for them to study.
Post-secondary students were hit hard by the introduction of the GST. As you are certainly aware, the GST was the first tax ever in Canadian history to be placed on books. There was almost no hidden manufacturers' sales tax (MST) buried in the present textbooks because books were exempt from the MST at every stage of production, so students were hit with an immediate 7 per cent increase.
In addition, the cost of textbooks has risen at a greater rate than the average cost of goods and services except, that is, for the cost of tuition fees and other ancillary fees associated with attending a post-secondary education institution. The federation, as well as other groups, predicted that the before-tax cost of textbooks would rise after the introduction of the GST. The price increase has come about with the result, as I mentioned before, that students on a budget must forego one or more textbooks because they have to pay the GST on other textbooks. For Canadian textbook publishers, this loss of sales drives up the per unit cost and, therefore, the extra cost is passed on to the consumer, the student.
The federation would like to highlight that, since 1993, $7 billion has been removed from the transfer payments to the provinces for post-secondary education and training. None of the measures announced in the 1998 federal budget will help students with the ensuing escalating cost of tuition fees and ancillary fees or the cost of textbooks due to these cuts. As for the proposed amendment to exclude reading materials that include more than the 5 per cent advertising from the zero rating, this will adversely affect small and medium-sized university and community college student-run newspapers. A significant portion of the student-run newspaper's revenue is obtained from mandatory student union fees. These are not subscriptions. It is illegal to charge GST on the student union fees. That was one thing the federation fought for and was granted when the GST was brought in: tuition fees and other associated education fees are GST-exempt. Commercial newspapers may charge GST on subscription and single copy sales. Student newspapers may not.
In general, the largest papers with the largest ad revenues will likely not be affected by the proposed amendment. The larger and more profitable newspapers lose less of their overall budget to the GST. This is not true for smaller and medium-sized newspapers. In addition, many not-for-profit and smaller commercial publications will be adversely affected by the proposed amendment. Students rely on these smaller publications in order to publish their work and use them as tools and communications among themselves.
While it is true that some very large publishers in this country may not be paying their fair share of taxes, the federation suggests that it would be better to rectify the corporate income tax system in this situation. The corporate tax system may be made more progressive by removing the tangle of tax deferral provisions, tax credits and tax expenditures currently allowed to corporations and not to students. We respectfully submit that the amendment and the sub-amendment be ratified and that the GST be removed once and for all from all reading materials.
The Chairman: I think you recognize Senator Di Nino, who is the sponsor of this bill. Before I call on him, just by way of summary, let me ask you a question. You said that you wanted the amendments ratified. I think not. It is the sub-amendment, which would remove the GST from most reading materials. You would defeat the amendment of Senator Maheu, which would have the effect of maintaining the GST on reading material that contains more than 5 per cent advertising.
Ms Doherty-Delorme: That is right.
The Chairman: What about the other two parts to her amendment, which would maintain the GST on any material that contains an age restriction imposed by law or on any material that is either obscene or of a pornographic nature? Do you have a view on that?
Ms Doherty-Delorme: The federation does not have a policy on those two issues. When we were looking at them, we realized that if it is illegal to sell the materials in the first place, the GST cannot be applied to it anyway. That will probably be defeated as well as the other materials. At this point, we do not fully understand the role of CD-ROMs in the learning experience and we have not made a policy on whether or not they should be GST-exempt.
The Chairman: Your primary concern in coming here today is about textbooks, is it not?
Ms Doherty-Delorme: Yes, on all books. Again, we represent students but we do feel for people in low income families who must buy, or should buy, reading materials for their children and for themselves. We are concerned about that sector of the population also.
Senator Di Nino: Thank you for coming. I appreciate your support for the bill. We are trying to right a wrong that occurred when we passed the GST, and I was one of those who participated in passing it. We are asking the Prime Minister and the Government of Canada to keep the promise that they made to Canadians over the 1993 elections since then, and even during the 1997 election, I believe. I appreciate the fact that you are here to support my particular initiative.
In your presentation, you talked about a couple of things that I would like to quantify a little bit. You suggested that the cost of textbooks has gone up substantially. Can you put a number on that? Can you quantify it in any way?
Ms Doherty-Delorme: No, I am sorry, I cannot. Statistics Canada does not have that information and some of the information is proprietary information, which we are not privy to. All I have is information from individual students on how much they have spent.
Senator Di Nino: From your own personal experience, how much have textbooks increased during the time that you have been buying the books you need to continue your education?
Ms Doherty-Delorme: First of all, I graduated back in 1986. I am now buying textbooks for my sons. You cannot compare the cost of textbooks because you go from one year to the next. You are never buying the same economics text from one year to the next, so it is very hard for an individual to look at the cost. Certainly, when I was studying, it was unheard of to buy a textbook for $150, and that is an example of some of the prices that students are facing now.
Senator Di Nino: There is no doubt in your mind that costs have gone up.
Ms Doherty-Delorme: Definitely.
Senator Di Nino: What about tuition? Do you have any statistics on tuition in the last few years?
Ms Doherty-Delorme: We have all the statistics on tuition. Again, since 1993, it has risen 45 per cent. That is way above the cost of the consumer price index. In fact, it has become a vicious circle with tuition fees. Some of the provinces would like to put in a formula where tuition fees increase with the rate of inflation, but the only thing driving inflation at the moment is the cost of tuition fees and reading materials. We have 2 per cent inflation right now, but tuition fees have risen between 10 and 20 per cent, again depending on the province, and they drive the inflation rate up. Quebec has been very stable. There has been a tuition freeze there for the last three years, as well as in British Columbia. Those two provinces alone have kept the average tuition price in the country from truly reflecting what the price is. Some schools in Nova Scotia charge over $4,000 for tuition fees alone.
Senator Di Nino: During the debate and the discussions in committee on Bill S-10, we heard both from the Minister of Finance people and some of my colleagues opposite that they felt that there were better ways of addressing the issue of escalating costs for students, particularly post-secondary students. Have you seen any actions taken by the current government in trying to alleviate some of the burden that additional costs have placed on an education in Canada?
Ms Doherty-Delorme: The last budget had two positive portions. One was a Canada study grant for people with dependants. The other was a small increase in funding for the research councils. However, those do not eradicate the $7 billion that has been removed from the post-secondary education sector and the training sector. We are now moving towards funding individuals instead of funding the whole program. The proposed Canadian Millennium Scholarship Fund will put in $2.5 billion over the next ten years. Again, that does not touch the $7 billion that has already been removed. That $7 billion is downloaded on to the provinces, which therefore download it on to the institutions, which therefore download it on to the students through increased tuition costs.
Senator Di Nino: How many students would those two small measures that you talked about help?
Ms Doherty-Delorme: They would probably help 200,000.
Senator Di Nino: That is from a total of 400,000.
Ms Doherty-Delorme: Our federation represents 400,000. There are over 1.5 million students.
Senator Di Nino: It is really a very small number.
Ms Doherty-Delorme: Yes.
Senator Di Nino: I have one last question. The crux of this particular round of hearings deals with a difference between my colleagues and myself as to whether the GST should be removed from books or from all reading material. You talked about the importance of other reading material to students. I wonder if you can just emphasize or highlight once again, if the GST was taken off books, obviously, that would help, somewhat.
Ms Doherty-Delorme: Right.
Senator Di Nino: In what way are students helped by the ability to buy cheaper magazines, cheaper newspapers, et cetera?
Ms Doherty-Delorme: The first has to deal with their own student newspapers. It costs quite a bit to put out a newspaper. It is an internal means of communication between the student union and students of different faculties. In fact, Margaret Laurence got her first start working for the student newspaper at the University of Manitoba. Many budding artists and writers, as well as architects and researchers, get their first break in publishing in either a not-for-profit magazine or newspaper or a smaller, small-run magazine or newspaper. It is a forum where they can present their materials and communicate among themselves, and it is very important for them. In my own job as researcher for the federation, we subscribe to quite a few non-mainstream magazines. The effect of the GST is a significant one on our small budget. We can only extrapolate that this would affect students themselves.
Senator Butts: I have a couple of very simple questions. Is it not true that students are eligible for the GST rebate?
Ms Doherty-Delorme: Yes, they are, but the GST rebate comes after students have had to lay out the cash. Many students live from cheque to cheque or on a Canada Student Loan, and the GST rebate comes too late in the year to compensate.
Senator Butts: Apparently, it is enough. Many of the students I know were very glad to get it at that point in the year. I do not know if that is as important as you make it out to be. Also, I think that books are going to go up in price whether the GST is on them or not, as they have always done.
Would you have any sense of what proportion of textbooks are not renewed every year? You can buy a second-hand textbook, which is a great industry in the university I am attached to, and they are less than half-price. Many courses do not have new books every year.
Ms Doherty-Delorme: No, we do not have any statistics on how much of a student's own personal library could come from a second-hand bookstore. In our experience, the books sold at the second-hand bookstore within the institution are not sold at half-price. Many of them are sold at cost because either there are not enough books to go around or students figure that if they can just sell the book without the actual cost of the GST, that is enough of a difference to sell their book and to recoup the cost that they incurred the first year.
Senator Butts: You have not questioned the students on the East Coast because it does not happen like that down there. Thank you.
Senator Cohen: We have the double tax in the Atlantic provinces. We pay 15 per cent. That affects students. In view of the fact that our illiteracy rates are very high in Canada compared to other provinces, I think that is a rather significant point that should be recorded here.
Senator Butts: Except that we are only talking here about the GST.
Senator Cohen: We are also talking about dollars.
The Chairman: We have not looked into the impact that this bill would have on the harmonized sales tax (HST) in the three Atlantic provinces that impose it. Would there have to be a special arrangement made with those provinces in respect of their tax on reading materials?
Senator Di Nino: Obviously, Mr. Chairman, that becomes a legal question that probably none of us here, or at least at this particular stage, are able to answer, other than to say that if the GST is removed on reading material, my opinion is that those textbooks, those newspapers, those magazines, would cost 7 per cent less at least. I would suspect that if we are able to pass this bill, that if the Government of Canada agrees to pass the bill in the House, there would be a strong movement, in my opinion, to also eliminate the PST on reading material in those provinces where harmonization has, in effect, created an additional burden from 7 to 15 per cent on textbooks, magazines and other reading material.
The Chairman: I take it the HST applies in those three provinces. It is 15 per cent in your province.
Senator Cohen: Yes.
The Chairman: Ms Doherty-Delorme, do you know anything about that situation?
Ms Doherty-Delorme: Definitely, the full HST is applied to all textbooks.
Senator Di Nino: Maybe Ms Doherty-Delorme could expand on her knowledge of literacy in Canada. We hear that some 38 to 45 per cent of Canadians are basically considered illiterate under the definition of the term. Previous witnesses have also told us that probably the single biggest cause of illiteracy in any country is a lack of reading material at a very early age in life. Do you have any comments to make on that? I wondered if your body would have done some studies.
Ms Doherty-Delorme: Certainly. The largest growing sector of the post-secondary system is the mature student sector. Half of the mature students have children, of whom half are in the post-secondary education sector. We are looking at basically double-taxing some of these students because they must buy their own textbooks and pay the GST or the HST on them. As well, they know the importance of having reading materials and they must buy the books, and so they are affected again by the GST there.
A regular home, I think, would have about $600 worth of children's books in it, a home that is able to provide a good atmosphere for nurturing the love of reading and a love for books. These are books that can be destroyed at a very early age or eaten, or whatever. Reading must be nurtured at a very early age. What we are hearing from our mature students is that all the combined increases, whether it is tuition fees or ancillary fees or the GST on their textbooks, are affecting their ability to buy the proper materials for their own children.
As I said before, we are very concerned not about those students who can afford whatever books they want, but with the many students who must rely on Canada student loans or provincial student loans. They will be paying a debt for 10 or 15 years after they graduate. Many students now are paying for their own education long into their own children's post-secondary career. That is going to affect their ability to buy textbooks as well.
Senator Roche: As you know, Mr. Chairman, I was not a member of the committee when this bill was first considered. In complimenting Senator Di Nino in bringing this initiative forward, I first of all must declare my interest as a university professor and an author, although that is not too relevant as none of my books make enough to cause me concern.
The Chairman: You are also a senator from the only province in Canada that does not have a provincial sales tax.
Senator Roche: That is a factor we will save for another occasion, Mr. Chairman. I want to declare my complete support for the bill and to compliment the witness and tell Ms Doherty-Delorme that I agree with every single word that she said. I hope that this bill can become law very swiftly. We have placed a shocking extra burden on students by requiring them to pay the GST on the reading material that we ask them to obtain in order to further their education.
I want to give my full support to this bill.
[Translation]
Senator Ferretti Barth: What you said is very important, especially for students. I support the bill of Senator Di Nino. He should be commended for his concern for people who need books or reading material for their personal growth and to improve their knowledge.
How do you think the government will react to the elimination of the GST on reading material -- newspapers, books, et cetera. -- since it stands to lose between $120 and 425 million?
It is a good thing to take the GST off reading material but not in the case of large publishing houses whose publications have more than 5 per cent advertising that brings in lots of money. Should we not leave in that third amendment to the bill? If we maintained the tax for these large publishers who have more than 5 per cent of advertising and exempted only small publishers, we could recover some $125 million out of the 320 million that would otherwise be lost.
If we pass the third amendment, small local and ethnic newspapers will also be penalized, but we could look into this problem later on. We could make the requisite changes to make it easier for small community papers that need neighbourhood advertising to survive. If we keep the third amendment, this would make it easier for the government and large publishers would not suffer that much because of it.
Ms Doherty-Delorme: There is really a problem of corporate taxes in this country. In terms of the deficit and the debt, a number of studies by Statistics Canada have shown that the government is unable to collect the taxes it needs.
First of all, we will need to change the corporate tax system to remove all the loopholes that allow corporations not to pay their fair share of taxes. That is where we should start.
If you keep the amendment aimed at removing the GST only on magazines and papers containing more than 5 per cent of advertising, you will penalize especially smaller papers.
Senator Ferretti Barth: You must also understand that we are living in a multicultural society. These community papers are used to send messages or inform about changes to legislation, et cetera.
Ms Doherty-Delorme: The GST is not paid by the publisher but by the buyer.
Senator Ferretti Barth: If I want to communicate a message to you and you want to know it, you have to pay?
Ms Doherty-Delorme: Yes. The GST is not the tool we should use to make sure profitable corporations pay taxes in our country. There are other ways, including the corporate taxation system.
Senator Ferretti Barth: That is outside of this bill.
Ms Doherty-Delorme: I mentioned it because it is the best way to target corporations. In Quebec, small publications aimed at children -- which are extensively used in school -- like J'aime lire, for example, have the GST on them. It is not the publisher who pays the GST but parents when they take out a subscription for their children.
Senator Ferretti Barth: If we pass the bill with the 5 per cent advertising amendment, the government will be more readily able to accept the proposal. Whatever we take away on one side will be felt on another. The government cannot at this time renounce this income.
Ms Doherty-Delorme: If it's guaranteed that the government will remove the GST on books, that's fine, but government revenues from reading materials are a secondary concern. We would like it removed on all reading materials.
Senator Ferretti Barth: With the third amendment? The 5 per cent? All those containing more than 5 per cent advertising would still be taxed.
Ms Doherty-Delorme: No. I said we should accept the sub-amendment that removes the amendment related to the 5 per cent.
Senator Ferretti Barth: I do not agree.
[English]
The Chairman: Thank you very much, Ms Doherty-Delorme. I take it this is your first experience before a Senate committee. I trust you found it relatively painless.
Ms Doherty-Delorme: Yes. There are no scars.
The Chairman: I would like to say something apropos of part of the discussion that took place a few minutes ago between Senator Ferretti Barth and Ms Doherty-Delorme. It has to do with the cost to the Treasury in terms of foregone revenue from this bill. One of the frustrating things that a committee faces in dealing with a question like this is the discrepancy in estimates of revenue foregone that we have before us. The Department of Finance, which is the department that should know and I presume can document their assertion, states that the amount of revenue that would be foregone by passing Senator Di Nino's bill is in the ballpark of $300 million. This estimate has been contested by a number of the proponents of the bill. We have heard numbers such as $120 million as being the correct figure. That is the educated guess or estimate of some people who have appeared before the committee. I think that is more than a 100 per cent discrepancy.
We will be coming back to this bill on December 8. The committee may want to look into this. Also, I recommend that you read the research paper that has just been produced by our friend Terry Thomas of the Parliamentary Library. I must confess that I read it only this morning because there was a power outage in my part of the Ottawa Valley last night. I could not read it before then. It is very, very good. In particular, I want to draw your attention to a potential jurisdictional problem that he raises in connection with one of these amendments and another potential constitutional problem perhaps bearing upon the Charter in terms of the definition of pornography and that sort of thing in relation to Senator Maheu's amendments. I just commend that to your reading since we are going to meet again December 8 on this bill.
We have with us Mr. Lawrence Napier Stevenson, who is the President and Chief Executive Officer of Chapters Inc., a position he assumed when the company was formed in April 1995 with the merger of SmithBooks and Coles. Chapters, as you know, is the largest book retailer in Canada and the third largest in North America, with more than 300 stores located in every province.
Mr. Stevenson has attended Harvard Business School and RMC in Kingston, holds an MBA degree, worked for nine years in venture capital and consulting for Bain & Company, leaving as managing director for Canada in 1993. He is a member of various well-known educational charitable and cultural organizations and, as a matter of fact, he is currently chairman of the Retail Council of Canada.
Mr. Stevenson has a brief opening statement to make. He has been kind enough to submit copies for our benefit. We had a quick advance viewing of his brief when I quoted it in questioning an earlier witness. I hope you do not mind that, Mr. Stevenson.
Mr. Lawrence Napier Stevenson, President and CEO, Chapters Inc.: I do not mind it at all, Mr. Chairman.
The Chairman: You have the floor. We will hear from you and then ask questions and proceed to discussion.
Mr. Stevenson: Thank you, Mr. Chairman. On behalf of everyone at Chapters, first of all, let me thank the Standing Committee on Social Affairs, Science and Technology for this opportunity to speak about the GST on reading materials.
The imposition of the GST on reading materials in 1991 was a staggering blow to Canadians, and most particularly to the Canadian book industry. We believe that it was almost unthinkable that Canada, a country internationally respected and renowned for the diversity of its culture, the quality and accessibility of its education system and the progressiveness and stability of its politics and economy should be one of the few industrialized countries to tax reading.
The bookselling industry in general in 1991 suffered -- and this is the statistic that you quoted, Mr. Chairman -- an estimated 10 per cent drop in sales attributable, in part, to the imposition of the GST on reading materials. This estimate is backed up by a study done by Coopers & Lybrand for the federal Communications department in 1986, which was obviously before the imposition of the GST. It investigated the relationship between book prices and consumer resistance to changes in those book prices. This particular study looked at the impact that a 7 per cent increase in price would have, which is, one would assume, the same impact that the GST would have. If you extend the study's findings, the GST itself may have caused closer to a 15 to 20 per cent drop in book sales, which is tough to verify because you have other variables, including how the economy was doing at that time. Similar elasticity studies on books done by Woods Gordon and others would seem to confirm this elasticity in that price/sales relationship.
[Translation]
The GST is the first federal tax in history to apply to reading materials. Most Canadians, even those outside the book industry, are opposed to a tax on reading materials, and agree that reading materials are a very special product, and should be exempt from both federal and provincial taxes on principle. Many other countries with taxation systems similar to the GST, including England, Ireland, Norway and Portugal, have exempted reading materials.
[English]
We believe taxing reading is regressive and hits our poorer citizens harder. The very people who need the right encouragement to develop critical reading skills are being faced with disincentives to read. Statistics Canada reports that less affluent households spend a larger percentage of household income on reading materials than do higher income households. Research shows that the greatest single factor in the development of literacy skills and the love of learning among children is the presence of reading materials in the home.
Research also confirms the importance of all types of reading: materials such as romance novels, how-to books and periodicals. We were able to see this first-hand through our partnership with Frontier College. Frontier College is Canada's oldest literacy organization, and both we and Frontier College are committed to supporting and improving literacy in Canada.
Some statistics were mentioned earlier with one of the other witnesses. More than 5 million adult Canadians cannot read, write, or use numbers well enough to meet the literacy demands of everyday life. The GST on reading materials is a tax on reading, and is therefore a disincentive to literacy. I suspect we could all agree that Canadians need food, shelter and health to survive. They also need the skills to purchase these necessities of life. By the year 2000, 60 per cent of jobs created in Canada will require a college level reading ability. We should eliminate disincentives to people developing these needed reading skills so that they can get on with life.
Although the GST has remained on reading materials non-stop since 1991, almost eight years later, we still hear about it constantly from our customers. I hear about it in my work days in the stores. Canada's readers continue to be outraged. In some cases, they are not aware until they again go and buy another book that we actually have a tax on reading. Canadians who love reading will never accept or, in my opinion, resign themselves to the fact that there is the GST on reading materials. Millions of Canadians, many of them our customers, have written letters, signed petitions and sent postcards, opposing the application of the GST to books and magazines.
Removing the GST on books would be an enormous boost to Canada's culture. The book industry, as you perhaps know, in the last couple of years has been growing. The opening of book superstores by Chapters and other Canadian companies has created a wider market of new readers. Canadian authors are being recognized internationally and at home like never before. The groundswell of interest in reading overall, especially the growing interest in Canada's writers, makes this an ideal time to announce the removal of the GST from reading materials. This could, in fact, be the turbo boost needed to launch the Canadian book community to the next level.
Chapters commends the Honourable Senator Di Nino for presenting Bill S-10 to the Senate almost a year ago, and commends the Honourable Senator Maheu for the hard work she has put into examining the bill and proposing her amendment. This committee is looking specifically at one aspect of Senator Maheu's amendment, the clause that would effectively exclude magazines and newspapers from zero rating.
As Canada's leading bookseller, Chapter's priority is books. I guess therefore you would say that we would prefer 80 per cent of a loaf to no loaf whatsoever. However, we also sell magazines and newspapers and we recognize the importance of magazines and newspapers to the development of literacy skills. Accordingly, we believe that all reading materials should be zero rated under GST. Should this committee choose, however, to support the Honourable Senator Maheu's amendment as presented, Bill S-10 as amended is still a very positive step in the right direction, given that it would remove the GST from books.
On behalf of Chapters, I urge the Senate to proceed with Bill S-10. It has been considered, obviously, for some time. Reading skills contribute to the strength of our democracy by allowing people to participate in the working of the process. We believe that the accessibility and affordability of books is essential to the growth and health of both our culture and our economy.
The Chairman: Mr. Stevenson, you say that the bookselling industry in general in 1991 suffered an estimated 10 per cent drop in sales attributable in part to the imposition of the GST placed on reading materials. This is 1998. What has happened since 1991? Have sales dropped and recovered? Where have sales gone in the intervening years?
Mr. Stevenson: That is a very good question, senator. One of the things with which I preface all of my remarks about statistics on the book industry is that they are unbelievably unreliable. I heard someone ask the question of the witness from Statistics Canada earlier. There are a number of reasons why they are unreliable, but there are two primary ones. Statistics Canada collects information on books and stationery as a product category, which means that much of the information you hear about year-on-year growth of books includes pens, pads of papers and things that, which are sold through the likes of Grand & Toy.
The second reason is the variable introduced by imports which, by and large, are never captured by Statistics Canada. They estimate, but usually they would be the first to admit that they do not know whether a package coming across the border that has been bought is actually a book or not a book. I preface all of my remarks by saying that 10 per cent is the best figure that I could get at in talking to our publishers as to what actually occurred in 1991. You have to factor in that there was also a hit to the economy in the exact same year. Therefore, a number of variables affected the sale of books.
Essentially, there was a one-time dip. As best as we can tell from looking at our sales primarily over that period of time, sales were pretty flat from 1992 through to about 1996. There was an increase, but it tended to be the price of books as opposed to the increase in the unit sales of books. If you looked at unit sales of books, they were flat, and there was about a 2 per cent per year price increase. The price of both the paperback and hardcover were going up. The dollar amount looked like it was going up 2 per cent a year but it was flat in real terms.
Since 1996, there have been pretty healthy double-digit gains in Canada. I believe that these gains are driven by three factors that obviously have nothing to do with the GST, since the GST existed in 1996 and still exists today. We are fortunate. As a country, I do not know if there has ever been another time when we have had as many fantastic authors that are internationally recognized. There is just a great amount of fantastic fiction and non-fiction in Canada.
Second, there is an interest in the book industry. The Calgary Herald has almost doubled its book section. People are reading more about books, more book reviews. Third, bookstores have had massive additions. We alone have invested in excess of $200 million building stores that, instead of carrying 10,000 titles, are carrying 120,000 titles. Canadians are being exposed to a much broader range of books.
The Chairman: From what I hear, they are reader-friendly stores.
Mr. Stevenson: Yes, I hope they are.
Senator Di Nino: Thank you, Mr. Stevenson, for coming and participating in this process. I think I have correctly identified the issue at hand. I believe that generally both sides of the chamber are in agreement on the removal of the GST on books. The question is should we go 100 per cent of the way, which is what we believe and are proposing should happen, by removing the GST on all reading material. There are some problems associated with that. I have a great deal of sympathy with my colleagues opposite. I do not think Penthouse should be treated the same way as Zdorov!, the Ukrainian voice, or Up North. That creates a very serious problem for us in trying to decide how to deal with that issue. Since you are here, I hope you can share with us some of your comments, feelings and thoughts.
Our contention on this side of the table is that literacy in Canada is not served -- as a matter of fact, it has been dealt a great disservice -- by imposing the GST on reading material.
In my opinion, literacy can be improved not only by going to Chapters and buying some books but also by going to Chapters and buying some of the other publications that are not defined as books, particularly when we talk about third-language magazines and newspapers across this country. I do not have any idea how many there are but there are certainly hundreds, if not thousands, published in this country by small, local entrepreneurs who struggle. They usually are the writer, the editor, and the salesperson for advertising. I think that the GST affects that kind of publication. Also, in my opinion, as I said before, you have all kinds of publications. These include: Artsatlantic; Que Pasa, a Spanish language newspaper; Mix, a rather unusual magazine for artists; UpHere, the magazine that is published by some wonderful people up north for the purposes of Northern Canada.
We believe that unless these and all of the local three, five, six-page newspapers are included in this definition, that literacy will not be properly served in this country. What is your opinion on that? Would you share your thoughts?
Mr. Stevenson: First of all, I would prefer that the GST be off all reading material. I think that many of the same authors who are writing in those periodicals then go on to write books. There is a shared community. It is also very clear that some people's first introduction to reading is not buying a $39 hardcover book. It may be buying a lesser-priced magazine. Having said that, I would say two things. One is that the GST becomes more and more important the higher the price point, just because of the magnitude of the impact. You know that when someone buys a book priced at $3.95, $4.95 or $5.95, they seem to be less concerned when they have to pay the GST. We noticed it for the first time on paperbacks as they started climbing up to $9.99. All of a sudden, the "plus GST"puts the customer over $10, and people start to get very price-resistant. You might ask what the difference is between $8.99 plus 7 per cent and just a straight cost of $9.99. The $8.99 plus GST puts you over $10. There was less price resistance at the lower price points. As you start getting up to a $39 hardcover, with GST, it becomes a pretty major purchase.
Having said that, I would rather have half a loaf now than continue discussing it while Canadians continue to pay GST on books. I leave that to this committee, but if you asked me, I would say that you are in a better position than I to make the trade-offs. Those trade-offs involve money that goes to different causes. I believe reading is a great cause but I am biased, as I happen to be in that industry. I would love to see the GST off both, but I would rather see it off one now and then come back to the discussion of whether we can afford others at a later stage if that would mean a two-year delay of getting an answer now.
Senator Di Nino: When we had Peter Gzowski as a witness, I asked him what is the symbolic value of removing the GST from reading material. He gave us what I thought was a pretty powerful answer. I wonder if you would like to tackle that question as well.
Mr. Stevenson: I am lucky to be involved in an organization called Frontier College. I sit on their board. One of the things that is very clear to me is that this is an enormous return on investment in education in general, although it is difficult to quantify. One dollar spent on something like Frontier College pays us back as a country seven times, I think. Therefore, if you believe that this costs us money, I assert that it is a very good investment in the future of this country to have the right incentive for people to learn to read and to develop their reading skills.
I think taxing books sends a very odd message, for Canada in particular. I have always been proud of what we stand for vis-à-vis our neighbours to the south. We have shown that we believe in education by and large through the cost of our education relative to theirs. Having studied on both sides of the forty-ninth parallel, I realize the cost of those education standards and systems. I believe that if we were to take the GST off reading materials it would send a very strong signal that we want all Canadians to be able to read and to develop their reading skills. I think it is very important. I think that putting the GST on reading material was an odd signal to send. We can reverse that by taking the GST off books.
Senator LeBreton: I have a supplementary to Senator Di Nino's point. You say that you would like it off all reading materials, but you would accept just taking it off books. Would that not cause a tremendous problem for Chapters book stores but more particularly for smaller businesses to have no GST on books yet still have GST on magazines? Would that not create a tremendous problem for booksellers?
Mr. Stevenson: Not really. Our point of sale system really allows us to do that. We can do it by province. We can do it by location, if we had to. It is designed to really charge whatever price the rules require. I would actually argue that it is easier for a smaller operator. One of our issues is that we have one national point of sale system. It is tougher when you start differentiating by region, which is where the harmonized tax was going to cause us some problems. We could have ended up with one book having ten different prices if each province had gone to a different tax. That is a bigger issue for a national organization than it would be if you were operating one or two bookstores in the same jurisdiction. No, we could get around that.
Senator LeBreton: Would it not be simpler to take the whole GST off, take it off everything?
Mr. Stevenson: It is simpler, but it really is a matter of a couple of lines of code for our point-of-sale system to be able do that.
[Translation]
Senator Ferretti Barth: In your statement you mentioned that the book industry is enjoying high growth. Some publishers are opening branches elsewhere. People say that because of the GST they read less and that books have become less accessible. If, for example, a hat manufacturer wanted to expand and open up new plants, this would mean that more and more people want to wear hats. It is not the GST that dampens the increase in demand.
I support the principle of the bill. We should be logical. The book industry enjoys high growth. If publishers want to expand, it means that there is high demand for books. The GST therefore did not reduce the desire to learn.
The tax on books, as Senator Di Nino explained, impacts on low income people and students. We should not be taxing necessities like food. We need to find a way to eliminate the tax on books which is unacceptably complex. Other countries have it but in a different context.
We must also realize that if the Conservative government imposed this tax, it was to obtain revenues. The amendments to the legislation are appropriate but we should not penalize our governments. This would indirectly penalize Canadians because if the government loses $320 million in revenues, it will have to get the money from somebody else.
We are told that large publishers do a lot of advertising. So let's try to get something back from these large institutions. If we hand the government a bill that takes away $320 million but with the possibility to recoup part of it from large publishers who will pay the GST on advertising content exceeding 5 per cent, the government will show greater flexibility in considering this bill. Senator Di Nino's bill will stand a greater chance of being accepted.
[English]
Mr. Stevenson: Let me if I can. I do not understand the political process to help what will and will not pass. I leave that to this committee and definitely not to me. I have watched the political process enough to realize I know nothing about it. There are two comments that I would make. I do not want to portray the book industry as an industry in peril. That is not what I see today. I actually see a healthy book industry. Publishers and retailers are probably healthier than they have been for a very long time. The GST is actually a non-variable in that issue.
The industry was in pretty dire straits in 1992 and 1993. I think that the GST was one of the variables that hurt the book industry. It has recovered from that. I do not know that those who believe that the GST has not affected books can use what has happened from 1995 to 1998 as their example. The variable was there in 1995 and is still there in 1998, and it really has become viable because of a whole bunch of issues that are not related to the GST. That would be my first comment.
I preface my next point by saying that I am biased. As important as it is to have the GST off food, health and basic necessities, I would rather teach someone to fish and by teaching them to fish, they can then buy many of those necessities. I think it is horrendous to watch some of the kids in our schools who are going into Grades 4, 5 and 6 and who still cannot read. It is a mistake that we as a country allow that to happen. Reading is a small part of that. Other factors include the education system and many other things such as the support we give to parents, but I think taxing reading sends a very wrong message in terms of what we say as a country in terms of people learning the basic skills.
Senator Butts: I am a little worried about making the absolute relationship between book sales and literacy in reading. My caution is that, at least in my part of the world, we have a big increase in book circulation in public and in university libraries. We have programs in the public libraries on Saturday mornings for children to learn to read and to listen to reading. All of these are perhaps an attempt to worry less about the actual sale of books. I worry that studies that equate the sale of books with literacy leave something out.
Mr. Stevenson: I do not disagree with anything you have said. I am not aware of a lot of studies that would directly correlate book sales to literacy. I believe there is a pretty logical step, which is having books at home as well as in the library. I do not think one or the other, I think it is both. I know that the library near our home that used to be open entire weekends, for budgets reasons, is not. My kids actually have to read a little bit more at home than they used to. I think they are complementary. I think that libraries are as important, if not more important, to literacy than book sales.
Senator Butts: I am just reiterating that it is up to the community to get that library open. Poor kids are not going to have books anyway, with the GST or without the GST. People who can afford to buy the books can probably afford the GST.
Mr. Stevenson: There was an article in the The Ottawa Citizen about what it takes to get kicked out of a Chapters store. In our Chapters culture, you can sit and read books for two hours. We have many kids who do that. They do not have access to libraries or their libraries do not have the books. You do not need to buy the books necessarily. We do not force you to buy the books. Enjoy the books. If you cannot afford them, then read them on our floor.
Senator Butts: There are grown-ups who do that, too.
Senator Cools: I wanted to congratulate Mr. Stevenson and Chapters for a job well done. I have also observed that everyone goes to Chapters, where they have these wonderful armchairs and a coffee shop nearby where one can sit for a few hours and browse. I want to congratulate you and your company for doing your job well and for demonstrating that bookselling can be big business. Bookstores used to be viewed as a losing proposition. I have not met you before, but I have shopped in your stores on many occasions.
I would also like to say, Mr. Stevenson, that I, myself, am quite a reader. I come from a culture where reading is very important. As a matter of fact, the island that I was born on, Barbados, has the highest rate of literacy in the world, which is quite a remarkable thing for a former colony and an underdeveloped country. I never met nor heard of an illiterate person in my life until I came to Canada. I never knew that people could be illiterate until I came here.
In any event, my purpose is not so much on the issue of literacy but essentially to congratulate your company for creating this wonderful atmosphere where people can buy books in a leisurely way. I am getting to an age where to sit is desirable.
The Chairman: On that note, Mr. Stevenson, I thank you. You have been a very stimulating witness. We have enjoyed your participation in our meeting very much.
The committee adjourned.