Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 11 - Evidence - Meeting of November 23, 2006
OTTAWA, Thursday, November 23, 2006
The Standing Senate Committee on Banking, Trade and Commerce met this day at 10:50 a.m. to examine and report on issues dealing with interprovincial barriers to trade.
Senator Jerahmiel S. Grafstein (Chairman) in the chair.
[English]
The Chairman: I welcome everyone here today. I want to welcome our audience from coast to coast. We are also on the Internet, which takes us beyond Canada and around the world.
The Standing Senate Committee on Banking, Trade and Commerce today is examining once again the interprovincial trade barriers that exist in Canada and, more particularly, the extent to which those interprovincial trade barriers are limiting the growth and profitability of affected sectors, as well as the ability of businesses in affected provinces jointly and with relevant U.S. states to form economic regions that would enhance prosperity for all.
This committee remains concerned that the barriers between the various provinces inhibit the development of a competitive, productive and effective national marketplace. We believe the topic of internal barriers to trade is critically important as we seek a prosperous future for all Canadians. The barriers, in our view, often increase costs for businesses and ultimately for consumers and may lead to inefficiencies that reduce competitiveness and productivity.
Certainly, we need to focus on actions that will enhance competitiveness and productivity. Canada is not moving in the right direction. There was an interesting article in Maclean's magazine this week indicating that Canada is slipping again in terms of worldwide competitiveness and productivity. Therefore, it is urgent for our committee to look at those areas to see whether we can help remove internal barriers to trade that are inhibiting the achievement of the goal we all want, which is growth and prosperity for all Canadians.
Today, we are delighted to have before us Mr. Nigel Byars, Executive Vice-President of the Canadian Institute of Chartered Accountants, and Ms. Anne-Marie Hubert, Partner, Ernst & Young.
Welcome.
Nigel Byars, Executive Vice-President, Canadian Institute of Chartered Accountants: Mr. Chairman and members of the committee, on behalf of Canada's 71,000 chartered accountants, thank you for the opportunity to speak to you today on the issue of interprovincial barriers to trade.
Fundamentally, Canada's chartered accountants believe the concept of free trade should be the foundation for both domestic and international trade arrangements. However, we believe it is important to stress the need for caution. In our striving for the ideal of a domestic free market open to unrestricted competition, it is critically important to remember that not all standards and regulations are inherently bad, nor are they necessarily anti-competitive, particularly where the standards and regulations are present for the specific purpose of protecting the public.
[Translation]
The 1994 Agreement on Internal Trade sought to promote an open, efficient and stable domestic market to promote long-term job creation, economic growth and stability. The federal and provincial governments have made progress on trying to reduce non-tariff internal barriers since the signing of the agreement. In some areas the progress has been significant, while in others it has been less so.
[English]
In an effort to gain further benefits for the economies of both provinces, the recent Trade, Investment and Labour Mobility Agreement, signed in April 2006 between the Alberta and British Columbia governments, seeks to eliminate barriers to trade, investment and labour mobility. Other provincial governments have expressed an interest in becoming parties to this or a similar agreement.
The Council of the Federation, which met in Halifax this past September, announced the collective commitment of the provincial premiers to resolve long-standing challenges related to domestic trade barriers and agreement on an ambitious action plan to ensure Canadians will be able to work anywhere in Canada without mobility restrictions by April 1, 2009.
It is clear that there is a desire on the part of governments to remove internal non-tariff barriers and promote competition domestically, an objective that Canada's chartered accountants endorse.
A study conducted by the Conference Board of Canada and referenced in its May 2006 report, ``Death by a Thousand Paper Cuts: The Effect of Barriers to Competition on Canadian Productivity,'' noted that the most common barriers cited by survey respondents were standards and regulations and that procurement appointments and labour mobility were also high on the list.
Interestingly, the report noted that very little research has been carried out on the productivity effects of eliminating or lowering the burdens created by NTBs, non-tariff barriers, and concluded that, for the services sector as a whole, which represents two thirds of the Canadian economy, barriers to competition do not appear to explain Canada's lower productivity performance vis-à-vis the United States.
[Translation]
We believe that not all standards and regulations are inherently bad, nor are they necessarily anti-competitive. Particularly when the standards and regulations are present for the specific purpose of protecting the public. It is this aspect of both the AIT and TILMA documents that we wish to bring to your attention.
[English]
Article 701 of the AIT focuses on enabling any worker qualified for an occupation in a province to be granted access to employment opportunities in that occupation in any other province. Article 13.1 of the TILMA document states that any worker certified for an occupation by a regulatory authority of a party shall be recognized as qualified to practise that occupation by the other party.
Canada's chartered accountants endorse labour mobility. In fact, years ago we harmonized our accreditation process to ensure that CAs can freely move across Canada and work in all provinces. Although we support the merits of trying to enhance labour mobility, we bring to your attention the important need to recognize that provisions such as article 13.1 of TILMA could lead inevitably to the risk that standards of qualification for professionals are thereby reduced to the lowest level prevailing in the country.
As provincial standards for regulation of professions are not uniform to begin with, this provision essentially makes the lowest of the standards that may exist in Canada acceptable as the base of qualification — essentially a race to the bottom, if you will. We do not believe that this is consistent with the obligation of legislators and governments nor of the professions themselves to ensure that the public is protected.
[Translation]
Let me expand on this point. As you are aware, professions in Canada are regulated under provincial law. Accordingly, chartered accountants in a province must be members of the Institute/Ordre of Chartered Accountants of that province and are subject to the rules of professional conduct of that Institute/Ordre.
The Institute/Ordre of Chartered Accountants in Canada have harmonized the educational and work experience standards for qualification to membership in the CA profession. As a result, there are established reciprocity arrangements that permit a member in good standing of one institute/ordre to obtain membership in institute/ordre in another province. As a further aid to labour mobility, the CA profession has a well-developed methodology for recognizing the equivalency of the education and work experience of professionals from other countries and has mutual recognition agreements in place with many of our international counterparts that enable foreign professionals with equivalent education and experience coming to Canada to obtain the CA designation and enables Canadians working abroad to obtain the corresponding designation in that country.
[English]
The institutes/ordre have also harmonized the rules of professional conduct to which members of the CA profession are subject.
The rules of professional conduct govern the responsibilities of chartered accountants to those persons to whom professional services are provided, to the public and to colleagues, in respect of the characteristics of a profession, principles governing the conduct of members and students, principles governing the responsibilities of professional firms, and personal character and ethical conduct. These rules apply to all members irrespective of the type of professional services being offered.
The rules of professional conduct as a whole flow from the obligations of chartered accountants arising from the necessary reliance of the public generally and the business community in particular on receiving sound and fair financial reporting and competent advice on business affairs.
[Translation]
This focus on protection of the public is most evident in the requirement of members to maintain their level of professional competence; the duty to avoid conflicts of interest and to maintain a state of independence and objectivity.
A uniform mastery of a particular intellectual skill, acquired by lengthy training and education, and a code of ethical conduct that is enforced and designed principally for the protection of the public are paramount attributes that distinguish a profession from other providers of a service.
[English]
The profession and practice of public accountancy is regulated in several provinces by a provincial government agency that determines who should be permitted to practise public accountancy within that jurisdiction. Recently, by example, the Ontario government enacted legislation that created the Public Accountants Council for the purpose of licensing public accountants in Ontario. The Public Accountants Council, which is independent of the accounting profession, adopted a competency-based assessment process that will ensure that high uniform standards of qualification and regulation are maintained by all those practising public accountancy in Ontario. In our view, this form of regulation is imperative to ensure that all those who practise public accountancy in Canada are competent to do so and that the public is protected.
It is our belief that this form of regulation should be required uniformly in all jurisdictions in Canada. The freedom to engage in and practise public accountancy should be available to all those who can meet the high uniform standards that are essential to ensure the protection of the public. Maintaining the highest standards is critical, particularly because in Canada not all provinces have a regulatory mechanism for the licensing of those practising public accountancy. In Manitoba, for example, anyone, regardless of their background and without requirement for proof of education and experience or other evidence of required competence, would be permitted to be an auditor. This clearly offers no protection to the public and leads to the risk of declining standards for the recognition of professionals. This weakness needs to be specifically addressed when framing AIT, TILMA or any multi-jurisdictional agreement that affects the standards that protect the public.
[Translation]
A few days ago we voluntarily responded to a survey undertaken by the federal government Commissioner of Competition related to a study of professions. The stated focus is the determining of the extent to which certain professions may use restrictive practices to control entry into their profession and/or to control the conduct of their members. The concern expressed seemingly was based on the presumption that standards and regulations are fundamentally anti-competitive.
[English]
The caution that we again underscore for the committee is that all standards and regulations are not inherently bad, nor are they necessarily anti-competitive, especially where the standards and regulations are established by an independent body, as is the case in Ontario, for the express purpose of protecting the public.
In our quest for the ideal of free and unrestricted trade, we cannot allow ourselves to ignore our obligation to protect the public and must ensure that all those who practise professions meet high uniform standards across the country. We urge the committee in its report of findings to emphasize the importance of ensuring that protection of the public be reinforced as a fundamental principle of internal trade agreements and that the provisions of the AIT and similar interprovincial agreements such as TILMA not be permitted to undermine the high uniform standards required of professionals, particularly those who practise public accountancy in Canada.
This concludes our remarks. Thank you for the opportunity to speak to the committee today.
The Chairman: Thank you very much for that very cogent report.
Senator Angus: Welcome, and thank you for attending before us. As the chairman stated in his opening remarks, this committee is concerned as a matter of public policy that Canada is slipping behind many of our colleagues in the OECD in matters of productivity and the like. These barriers that exist internationally also seem to be prevalent in the country in which we live — which is why we are focusing on this subject. I understand you have been following our hearings, and we are pleased to know that. You probably have read the transcript of the association of CGAs. I notice Ms. Hubert is nodding her head.
As long as I have been on the Banking Committee, which goes back to 1993, there has been an issue in Canada amongst the two major accounting organizations. It was brought more into focus than ever before in that evidence to which I have referred, and it seemed to me to be particularly focused within the province of Quebec, from which I hail, and I suspect Ms. Hubert does also.
I do not care who answers this question. Give us your own characterization. You are chartered accountants, the key word as I understand it being ``chartered.'' You have talked here about public accountancy and you have indicated the new Ontario statute that strives for standards, which are, of course, very good things — we all want the best professionals. Then you refer to Manitoba, where anyone can hang up their card as accountants, so the CGAs have no problems in Manitoba. You can have your office next door to the CA, and you people, if I understand well, will compete openly, the two fields, if you will, or the two types of public accountants in Canada.
In any event, we are troubled by this. We have listened carefully to their evidence, but we wanted you to have a full and open opportunity to help us understand better.
I am reading into your remarks, Mr. Byars, that you agree the status quo is not the answer. I am pleased about that.
I turn it over to either or both of you for your comments, generally, on the ongoing issue and your view as to how it can be resolved.
Mr. Byars: If I could start, the essence of the message that we are trying to deliver — and using your example to illustrate it — it is not about whether a particular designation should have a right or not. The issue is about the need to establish and maintain uniform, acceptable high standards of qualifications for professions. Anyone who meets those qualifications, regardless of what underlying designation they may have, if they meet that high uniform standard to qualify for that professional activity, should have the right to do so.
In my view, I do not think that the determining factor is the designation of origin, so to speak. The issue is this: Is there a standard of competence that is equivalent to the standard that is expected for those who are practising that profession?
In our case, our concern obviously is the public accounting practice of accountancy. However, I would say, from our view, we believe that the uniform application of high standards of recognition for professions is a broad issue in Canada. It needs to be a level playing field, but a level playing field at a high uniform standard for professions across the country.
Senator Angus: In many respects, then, you would agree with the submissions that were made to us by the CGAs.
Mr. Byars: In our view, anyone who meets the level of competence should have the right to practise that profession.
Senator Angus: Right. I know you have been very careful in crafting the wording, and I do understand you have been talking to the Competition Bureau on these issues. Forgive me for asking the question this way, but are you suggesting that all the members of the CICA, having passed the appropriate exams and so forth, do have the qualifications that you suggest public accountants should have, whereas, on the other hand, those members of the CGA association are lesser qualified?
Mr. Byars: No, that is not what I am saying.
Senator Angus: I want to get that out and understand why there is a problem.
Mr. Byars: In response to that, I would use myself as an example. I have been qualified as a chartered accountant for over 35 years. I am a member of the institutes of chartered accountants in three provinces, one of which is Quebec. Under the system that exists in some provinces, the mere fact that I hold the designation ``chartered accountant'' would permit me to practise public accountancy.
I have not practised public accountancy for probably close to 30 years. I spent most of my career in industry. I have very broad and deep competences, but I would not hold myself forth as someone who today could walk out on the street and hang up his shingle and practise as a chartered accountant offering public accountancy services.
Senator Angus: But you are entitled to.
Mr. Byars: I will use Quebec as an example. If I wished to do that in the province of Quebec, the Quebec institute of chartered accountants would have a requirement that I meet tests of competence and undertake refresher training to ensure my level of competence was current — that I had not, despite my age, lost my edge. I do not have an automatic right. In fact, the automatic right really does not exist across Canada.
Senator Angus: Help me on the CGA issue. You know what the issue is.
Anne-Marie Hubert, Partner, Ernst & Young: If we step back and think of what public accounting is all about, it is there to protect public trust in our capital markets. It is not just a Canadian or a provincial issue; it is a global issue.
Globally, there is a major trend for trying to have common standards that we would all uphold to restore and keep public trust in the various capital markets. Some economies are struggling and need to raise the bar. We would not want to see Canada be lower than what is going on at the international scale. That is all we are saying.
We do have, as a profession, some institutes such as the one in Quebec that ensures that, in practice, that is happening. When we do public accounting, we do have standards so our counterparts globally are not questioning and checking what we are doing.
Every month, I move people from province to province in my job. We did recruit, just in Montreal, 42 people from France last year. Having organizations that help us determine what those standards are ensures we can quickly assess the gap between what they have. It allows me to train my people to get to those standards, so I can trust that we will deliver quality public accounting in Canada for the clients and for the investors to protect the trust in our economy.
Senator Meighen: For clarification, I am just a garden variety lawyer. I do not understand the distinction between public accountancy and chartered accountancy. Is it like criminal law versus another type of law? Please help me with the distinction. You talk about the practice of public accountancy, which you would be hesitant to undertake after 30 years of working in industry as a chartered accountant. Am I correct?
Mr. Byars: With the qualification of chartered accountant as part of my fundamental education experience, yes. The distinction, if I may, is a lawyer may be a lawyer, but he may not necessarily be practising his profession as his principal pursuit of employment. He may not be offering his services broadly to the marketplace as an expert in that field.
Canada's chartered accountants have 71,000 members. Of those, only approximately 40 per cent are engaged in the practice of public accountancy. The remainder are employed in industry, education and government, and various other positions. They are all chartered accountants.
Senator Meighen: As what?
Mr. Byars: Dominic D'Alessandro is a chartered accountant, as an example. John Cleghorn, former chair of the Royal Bank, is a chartered accountant. Peter Godsoe, the former chair of the Bank of Nova Scotia, is a chartered accountant.
Senator Meighen: Okay, I get it. There are millions of lawyers who do not practise law.
The Chairman: To use the legal analogy, there is a division between corporate counsel who practice law within the confines of a corporation — obviously specializing in the areas of that corporation, but providing general services. Then there are obviously those who practise generally and are not limited to the corporation they serve. That is a distinction in the legal profession.
I think what Senator Meighen is getting at is this: Is that the same distinction, as it applies to chartered accountants who practise their craft within an industry as the head of accountancy, for instance, or chief financial officer in a corporation, versus providing public services to the public at large? Is that the distinction?
Mr. Byars: Yes.
The Chairman: Is that helpful, Senator Meighen?
Senator Meighen: Not totally; so public accountancy is what? Is it like a lawyer who hangs out his shingle?
Mr. Byars: Yes, one who offers his services to the public generally, any client who wishes to engage him or her.
Senator Meighen: Is that person a chartered accountant by definition?
Mr. Byars: No, that is not what we have said. We have said anyone who meets a uniform standard for recognition for licensing for that activity should be able to do that. Using the Ontario example, that is essentially the state in Ontario. It is not driven by whether or not one is a chartered accountant.
Senator Angus: It is the same situation in Quebec as among lawyers and notaries. It is an anomaly. The notary profession, for better or worse, is a dying profession. Some of these barriers have broken down. Legal firms are now allowed to have notaries signing deeds and passing deeds, pursuant to a very recent amendment that Senator Goldstein is aware of.
In Quebec, we were told about the case of the CGA in New Brunswick, 50 yards from the Quebec border, who was able do audits and sign statements on that side of the street but not allowed to across the street in Quebec. That, to me, is an impediment to free trade.
I know it is more complicated than it might appear on its face, and it has been in place for many years. In Quebec, your organization has a monopoly, we are told by these people, and you saw the evidence, and there is some lobby that prevents the government from changing the law. At least that is what I understand; if I am wrong, please help us.
This is one of the thorns under the saddle in Canada. Certified general accountants appear here regularly and are very cogent. As I say, the testimony is open and transparent and available on the transcripts. I was trying to get you to answer the statements they made, but I did not feel that you did so. Rather, you simply said that ``We are for motherhood,'' and we want competent professionals across country. I asked: Does that mean you are okay for CGAs in all provinces? You have particular jurisdiction signing audited statements and the like.
Mr. Byars: To respond specifically to your last remark, I personally am not in a position to comment or to critique in respect of the level of competence of CGAs across the country and whether it is uniform all across the country. I do not have the knowledge level to do that. I can say only that, in the context of chartered accountants, it is uniform across the country.
Senator Goldstein: Thank you for coming and sharing your knowledge and wisdom with us, Mr. Byars and Ms. Hubert.
I have two questions that I want to deal with. Generically, we find ourselves in a situation where the bulk of what we are trying to accomplish in terms of diminishing interprovincial barriers is of provincial jurisdiction rather than federal jurisdiction. They are initiatives like AIT, TILMA, the British Columbia-Alberta agreement, and the Ontario-Quebec treaty, if I may call it that, with respect to movement of construction labour. All of these are provincial initiatives, as is the Council of the Federation, dealing as it did very nicely with at least declarations of principle, which are encouraging, if not as yet implemented. All of this is provincial jurisdiction. My question is a rather blunt one: Do you have any wisdom to impart to us as to how the federal government, the one which we serve, is able to be helpful in the context of a very economically fractured system in Canada?
Ms. Hubert: We are advocating common minimum standards that would be accepted and consistent with what we have globally. That would be a good way to make a difference at the federal level. It is much easier for me to move someone from Halifax to Calgary if I know that they will operate on similar standards, and we do move people on a regular basis.
The fact that we have a national standard in the CA profession makes it easier for us to transfer people from province to province. We recruit CGAs, CMAs and people with other backgrounds, and we help them get through the CA exams or their recognition to be able to do what they want to do in public accounting.
Having common minimum standards makes our lives easier in terms of transferring. You do not want a nurse or a doctor who does not have the designation to switch provinces. It is the same for our economy and capital markets. We want to ensure that the people we have working on the various accounts have the minimum standards required. As well, we want to ensure that we have the support of the profession. We talk to each other to develop processes that facilitate recognition of skills and competencies. In that way, we can help every single individual in this country who wants to achieve to his or her full potential, especially when we recruit from abroad.
Senator Goldstein: I think my question was not clear. I am trying to get at how a federal government, in a provincially dominated jurisdictional system, would be able to help in this respect. You spoke a few moments ago of establishing standards. The federal government cannot establish constitutionally effective standards, although others around this table might think otherwise, because these are clearly fields of provincial jurisdiction. The moment the federal government tries to establish some form of standards as a government initiative or as a legislative initiative, it will be challenged, and I think correctly, by a number of provinces, perhaps most, if not all, of them.
I come back to what you are seeking specifically in microcosm. You are talking about public accountancy, but as you said it is true of nurses and all of the professions to the extent that all of the professions are regulated provincially and territorially, which they are. We find ourselves in a situation where de facto we cannot establish uniform standards unless and to the extent that in your particular case the CICA or the order in Quebec lobbies specific legislatures in which they exist to be able to establish those standards. Everyone is in favour of standards — that is motherhood and apple pie. The question is how one goes about creating uniformity of standards in that respect within the kind of system that we have. Have you had any thoughts about putting together a pan-Canadian grouping that, in that capacity, can lobby individual specific legislatures to try to help the creation of those standards? We cannot do it federally.
Mr. Byars: Senator, I would say that this might be considered the commencement of our ongoing journey. We have expressed a concern here that, although we are highly supportive of the elimination of barriers to trade domestically and, frankly internationally to that extent, in reading the language in the TILMA document we find that it is not in the public interest. As a more particular example, I talked about section 13.1 and the fact that anyone who is recognized in a province would be recognized in another province. However, if you look at section 13.2, it goes further to say that if you have to be licensed, you cannot require in another province that that individual undertake further supplemental training and education in order to get up to a standard. By default, the level of standards is forced downward to the lower of whatever standards exist.
So, our concern is that this is not in the public interest and does not protect the public. What can we do? What can senators or government do? It properly begins with a recognition that it is fundamentally the principles that are important and not the rules instructing any type of agreement. A fundamental principle must be recognition of the importance of maintaining the protection of the public and not being open to a situation that would be conducive to reducing the level of standards that are necessary to recognize professionals. That is in the interest of public.
Ms. Hubert: As well, at the federal government level, you have created the Canadian Public Accountability Board, the CPAB. That overseas, at least for public companies, what is happening is that we are maintaining good standards across our work. That is one action taken by the federal government that sustains the standards for public companies.
Senator Goldstein: That is one of the rare areas precisely because they are public companies. Those that are federally incorporated, as opposed to those that are provincially incorporated, can establish uniform standards in terms of corporate transparency in a variety of other areas that are of corporate concern and of accounting concern as well. However, that body has very restrictive implementation powers, as you know.
Ms. Hubert: — and resources.
Senator Goldstein: That creates the entire problem of having provincial securities regulators in every province and in every territory — the economic waste that results from that. However, that is the current system.
Senator Meighen: I just want to flog this subject a little more, if I could, in terms of how best to achieve progress.
Within the chartered accountancy profession, you, I suspect, proceeded internally and got your own house in order — that is, you established a satisfactorily high hurdle in every jurisdiction. Is this fairly recent?
Mr. Byars: No. In fact, that is a state that has been in existence for a long time.
Senator Meighen: Are we talking 50 years or 10 years?
Mr. Byars: It was in existence before I qualified.
Senator Meighen: That would be about 10 years.
Ms. Hubert: I was going to use my 22 years.
Senator Meighen: Then perhaps we should get more senior chartered accountants as witnesses to tell us how they succeeded in persuading those jurisdictions whose standards were not as high as others to raise the bar rather than everyone else lowering it. Obviously, if you have a low bar, you tend to attract people. If you are a construction industry, it might be to your advantage not to have too severe challenges. How did you get the bar raised rather than lowered to achieve uniformity?
Mr. Byars: Canada's chartered accountants compete in a global environment. In order to compete successfully in a global environment, you must be as good as you can be in the context of the world, and that is where Canada's chartered accountants have strived to be for years. This profession originated more than 125 years ago in this country and over the years has evolved from institutes that were uniquely focused on their own internal provincial issues to a true national profession that now has broadened its connections and its influence to the global marketplace. It could only do that by assuring that it was as good as any other profession across the world.
Senator Meighen: Perhaps your experience has been unique, because I am thinking of how we translate the success you have had in your profession to other occupations — perhaps the construction business, for example, or others you can think of. Do you have to start internally, or is this generally something that the provincial authorities have to act on and come to some agreement?
Mr. Byars: This is in fact an area where there is a need for acceptance on the part of provincial governments that there is an importance for uniformity in the standards that apply to professions, that it is critically important that the interests of the public are protected, and that the only way one can do that is by maintaining a uniform standard and supporting the principle that protection of the public is inherent in everything that should be done in connection with a profession.
Ms. Hubert: Three weeks ago, there was a global public policy symposium in Paris involving many key players. Three years ago, it was only the accounting profession. We cannot do it in isolation. We are there to protect the public. We are there to sustain trust in our economies. The challenge is not Canadian anymore; the challenge is global. Public accounting firms, where there are regulators, where there are investors, need to think together about what standards are required to ease doing business globally, to ease the success of the organizations globally and to protect the public through good standards in public accounting.
The challenge is really to raise the bar globally to standards similar to ours. That is what we are striving for as a profession at the moment. The CICA would be engaged in influencing the global agenda, because that is really where the challenge is nowadays. The dream of our clients is not necessarily to operate only in Canada.
Senator Meighen: It would seem, then, that the less the global demands, the easier to impose local and different regulations. In other words, taking the construction industry again, one could argue that there is not a heck of a lot of global demand or global competition on the construction industry in one part of one province and a neighbouring province, so what is the incentive to adopting a common high standard — that is what I am searching for — other than the lofty principle, and the correct principle, of protecting the public, because you do not want houses built that will fall down. However, it does not seem to work, and it does not seem to act as a prod very successfully.
Mr. Byars: Senator, you used the phrase ``the lofty principle.'' I would argue that it should be a fundamental principle.
Senator Meighen: It is lofty, too.
Mr. Byars: Protection of the public is key in this issue, and I would support your comment. When one thinks of it, everyone who can drive a nail is not a carpenter. Everyone who can build a tool shed is not an engineer. Everyone who can take a splinter out of someone's hand is not a nurse. Everyone who can put a bandage over a cut is not a doctor. There need to be uniform standards of acceptance of the qualification of professionals for a public who has no other basis of making a determination other than that the individual in question is holding themselves out to be a professional, the presumption being that the person has all the necessary skills and competence and education. The public puts their trust in the fact of an individual holding himself out to be a professional; the public has faith in what that individual does, hence.
Is it right to not have a basis for assuring that those who hold themselves out to be something, particularly a professional, are in fact at a level of competence and education and experience and knowledge and know-how to in fact hold themselves out to the public?
Senator Meighen: That is the key. We want them to hold themselves out as a good professional — as an expert professional. How to achieve that still eludes me.
Senator Angus: We have been talking all along about standards in terms of competency levels, I understand. There are other sets of standards, such as the Canadian gap versus the U.S. gap, and the Canadian and U.S. gaps versus the international standards. Those are also big-time barriers, believe me, to the free flow of trade. I know it is something your profession is addressing in a global forum, and it is very important.
Ms. Hubert: I would totally agree with you. We are moving forward to international accounting standards. Our CEO for Ernst & Young Global, who is American, is pushing the Americans to move to international accounting and auditing standards as far as he can. I believe other CEOs of large professional accounting firms are also pushing for that. We operate globally, and we need to have common standards globally that are acceptable to all the economies on the planet.
Senator Angus: There are absurdities when you find the financial statement of a Canadian public company and you turn to the middle of the annual report and you have the balance sheet as per Canadian gap and the balance sheet as per U.S. gap, and a big difference in the bottom line. It is dysfunctional.
Senator Harb: It is quite obvious we need to have uniformity all across the board. We could be talking about level of taxation because that, in one way or another, may create an advantage for one province or another province. We have also to look at the issue of fees in terms of imposing a fine or putting fees on a load of garbage being dumped someplace, and it goes all the way to the other end, which deals with the notion of rules and regulations. In essence, the bottom line for all of those things to happen, the key to it, is the private sector. Whether we want it or not with the professions or with the different trades that are involved, in Alberta and British Columbia, they have an agreement that will come into effect in April 2007 for over 60 different professions, and the vast majority of those professions are managed by some private sector or private entity or association such as yours, or others.
I would say that to a large extent we should not really be looking to the government in order to find the solution. Rather, the private sector has a responsibility to show leadership and harmonize their own standards across the board, and say, ``Yes, this works; now we are prepared.''
The government at that time will probably have no choice but to agree.
Could you comment on that?
Mr. Byars: I support your comment. Certainly, as it relates to chartered accountants across Canada, we have done that. We did that some time ago.
There is an aspect, though, to what you suggest that is always a challenge, and that is the perception that one is really working in self-interest instead of in the public interest. In the case of the Ontario Public Accountants Council, that is established as an independent body. It is independent of the accounting profession. It is, in fact, the Public Accountants Council that establishes those standards, so that standards are not being set in an environment of self- interest but in an environment of public interest. I think that is an important component.
We, as chartered accountants in Canada, are certainly very willing and very well equipped to participate in a process of working towards establishing high harmonized standards of recognition of professionals across Canada in our field. We have a well-recognized process. Our international qualification appraisal board process is the process that is used to review the competence of comparable designations from other countries that leads ultimately, where there is comparability, to a situation of mutual reciprocity and recognition on both sides.
So the methodology exists, and we certainly would be supportive of participating in that process. However, by the same token, I think there is a need for assurance of independence in the process in order to ensure that it is the public interest that is protected. As professions are regulated under provincial jurisdiction, that falls back towards the individual provinces.
Senator Harb: Thank you for your response. It takes me to another point. We signed onto the World Trade Organization, so we have obligations on the international scene. There are certain obligations we must fulfill.
Case in point: The City of Ottawa at some point gave a contract to one company. Another company that bid took them to the International Trade Tribunal and there was some sort of a review.
As it is now, there are mechanisms that exist for one to challenge a municipality or a province under world trade rules. I find it rather bizarre that within Canada we still have those kinds of impediments to labour mobility.
Personally, I do not think trade in goods and services is the problem as much as labour mobility. I wanted to find out whether or not you or your organization has had a chance to quantify what we are talking about. Some say it is about 1 per cent of the gross domestic product that is impacted negatively as a result of that. Others say it is a lot less and still others say it is a lot more.
Has your organization done any study on that?
Mr. Byars: No, we have not addressed that question. That is delving into economic analysis and it is not a direction that we have pursued.
The Chairman: We have listened to what you have had to say. We hear you talk about international standards without relationship to the cost to the economy. Obviously, you have to balance the public interest in terms of protecting the public, at the same time ensuring we become more productive. How can you put forward regulations and standards without making an economic analysis as to the benefit to the economy? I apologize, but I think that was Senator Harb's question.
Mr. Byars: I would respond to that question in this way: Is the issue the price for the services offered or is it the net cost to the recipient of the services? Is there an advantage if someone pays a lower price and, as a result, gets a lower level of competence or in fact acquires services from someone who is incompetent and then consequently suffers all of the costs and damages associated with receiving services that do not have the quality behind them?
When we are talking about professions and the interests of the public, the focus has to be on assuring that the quality of the provider of the service, the services being provided by that individual, are of an acceptable and expected level of quality. That goes beyond the issue of the pure economic analysis of what is the hourly fee rate that one person might be charging versus another. If we are talking about cost, I think we have to talk about real and inclusive costs and effects.
Senator Harb: Ms. Hubert earlier mentioned something very interesting, and that is that we have to look at international standards and find out what everyone else is doing. I think that is something we should be doing, not on one profession but across the board, on all the trades, to find out, for example, in economies similar to ours, whether the European Union or the U.S., how they deal with standards. We should conduct a substantive study to find out, in terms of the standards they have introduced in order to deal with labour mobility, the fees they apply in different jurisdictions, and so on, and then come back and say, ``Okay, this is what we think is happening here.''
I do not think we have done any of that — I will be honest with you — probably because we think there is a problem, but no one seems to be screaming at us to tell us to deal with it. We have taken the initiatives ourselves, but at the end of the day I am saying: Where is it?
I have been in public office for close to 21 years and have not received a single letter from an entity complaining about it. Is this a make-work project? Are we making it look like a big problem when in fact there is no problem, with the exception of the labour mobility issue, which I think to a large extent is playing into the hands of trade organizations and professional organizations?
I am a professional engineer. There are impediments for people to enter the profession. Sometimes I question whether it is because of selfish and monopolistic reasons that they do not open it up, because as a result of that the prices might go down and more people might be practising. Or is it because they care about the standard? I graduated years ago. I have not been tested once to find out whether I still meet the criteria. Nonetheless, every year I send in my $214 in fees and I am a professional engineer; I can sign on documents and do this and that, even though I have not practised for a long time.
I think we have a problem here, and the problem is not the government but trade organizations and professional organizations. They have to shake themselves up in a sense and have some sort of a get-together and talk it out.
Ms. Hubert: You are very right. I raised the issue before. We feel that regulators need support from our industry to help them define where the bar should be globally. We work in countries like Russia and China, and all the countries of the world, to ensure we have acceptable standards to protect our clients and the local investors, too, because our clients operate globally.
As you said, we need to put our house in order in Canada. However, our challenge now is broader than that and we have to do it on a larger scale, to ensure we protect the interests of the public. That is what we do globally at the moment.
Senator Tkachuk: I have just a few questions regarding public accountants. If an individual goes to university for four years, then does whatever they do in the accounting firm, writes his chartered accountancy exam, becomes a chartered accountant and gets his certificate, does he then apply to these people to become a public accountant so that he can work in Ontario?
Mr. Byars: To be licensed, yes.
Senator Tkachuk: Does he or she have to write further exams or does he simply write a cheque, like with teachers; you write a cheque and then they give you a little card because the degree is not any good until you get the card?
Mr. Byars: The process is evolving, as I said. This is a relatively recent environment. The direction in which we understand the Public Accountants Council is moving is that the council will then examine various professional bodies to determine whether their own standards meet the level of competence established by the Public Accountants Council and, if so, will then designate the various professional bodies the right to be the primary evaluator for purposes of granting a licence.
Senator Tkachuk: Who are the people who sit on that council? Is the council comprised of other public accountants or chartered accountants?
Mr. Byars: There is representation from each of the accounting designations, as well as representation by the public. The representatives are essentially determined by the government.
Senator Tkachuk: It is very confusing.
Ms. Hubert: It is all about skills and experience. If we look at productivity in Canada, more organizations should be focused on the recognition of skills and experience, helping people get the skills and experience to do what they should do to contribute their full potential to our economy. We have too many people in this country who have come as immigrants, have skills, talents and education from their own countries, for whom we do not have processes in place to assess their skills, talent and experience, to give them credit for those and help them bridge the gap to allow them to fully contribute to our economy. If we are talking about productivity, that is one thing we should be looking into.
Senator Tkachuk: To help me through with this Public Accountants Council, the fact that a person fulfilled the academic qualifications, may be a straight-A student, became a chartered accountant, got his degree framed and put it on the wall, is not good enough. The individual then has to pass some competency requirement of the Public Accountants Council, which is a totally different issue from someone who comes with a degree from a separate country, which we may not recognize. I do not know how you do all this, but I do not quite understand what the point of the full process is. If a person has met his or her academic qualifications, why can the person not just open up his or her door for business; why do we need these people?
Mr. Byars: I cannot speak on behalf of the Ontario government. It was the Ontario government that created the mechanism.
Senator Tkachuk: Someone had to ask for it. Someone in the government did not get up one morning and say, ``Let us start a Public Accountants Council.'' Someone lobbied the government that this was a good thing to do.
Mr. Byars: I would agree with that. The important point to consider is that the Public Accountants Council has adopted an identified statement of competencies against which they evaluate professionals, and that is the essence of what we have been saying this morning. The Public Accountants Council has in fact created and adopted a uniform standard that applies to anyone who wants to be licensed to practise as a public accountant in Ontario. We think the process is credible, and one that is supportive of the public interest. It is a process that we believe should apply across the country to assure that there are uniform standards. They are documented standards. They are standards against which anyone can be evaluated, and if they meet those requirements, they should have the right to practise that profession.
Senator Tkachuk: You are arguing that there should be one of these councils in every province. My concern is that it may be a way to keep people out of the business as well as to keep people in the business.
You say there is nothing in Manitoba. Are businesses in Manitoba in trouble or is the public less informed? What is the difference between Manitoba and Ontario?
Mr. Byars: The essence of the difference is that anyone could hold themselves out to the public.
The Chairman: That is not his question. His question is this: What is the impact on the public in terms of how well the public is served? Is the public interest less well served by that? That is the question Senator Tkachuk is asking.
Mr. Byars: The public is less well served if those who are in fact holding themselves out to be professionals do not have the level of competence to provide the services that are required.
The Chairman: Do you have evidence to support that contention?
Mr. Byars: I cannot speak specifically to Manitoba instances. In Ontario, as an example, in terms of chartered accountants who are accountable for acting within the context of our code of professional conduct, the names of those who are brought under the disciplinary review provision because they do not meet the standard of the CA profession in the province of Ontario are published on the Ontario institute's website. If competency issues exist in our own profession, where we have, in my view, standards as high as exist anywhere in the world, I would suggest to you they also exists in other environments, but I am not in a situation where I can speak specifically to clear examples that I could cite.
Ms. Hubert: Canada has many immigrants, many of whom have designations. If we focus on a system that will allow recognition of immigrants' competencies and experiences, and help them bridge the gap, we will improve productivity. We will improve their contribution to our economy. That type of organization allows us to ensure that we sustain those levels for the ones we have that have not practised for many years, that might not be up to date, and also enables the newcomers to this country to fully contribute and achieve their full potential.
Senator Tkachuk: Let us take the example of an accountant from India who moves to Winnipeg. He puts his accountant's degree on the wall; he puts an ad in the Yellow Pages. As a result, he gets business. He does books for companies, files incomes tax returns on behalf of clients. He does a good job. He is paid for his services. Who is hurt? What is the problem here?
Ms. Hubert: We do recruit people from India. I have a number on my team. They first get up to speed on auditing standards and on taxation matters. We help them bridge the gap in terms of the knowledge and competencies they need to be able to serve clients with accurate information.
The Chairman: I think he is raising a fundamental question that concerns all of us.
Senator Fitzpatrick: It gets a little confusing. We are talking about free trade in Canada, or reducing the barriers, and the discussion that we have had is an illustration of the many different barriers with which we are having to deal. For example, there is the suggestion that there should be a public council for Canada, not Ontario. The fact that Ontario has established one provides a barrier for free trade.
The fact that there are different accounting designations, CGAs and chartered accountants, to me is a barrier for free trade in Canada.
What, as an organization, are you doing to lobby to see that there is some uniformity in standards, not within your own profession but within the practice of public accounting or accounting in Canada, and in dealing not only with provincial governments or federal governments? We know we are restricted with respect to the ability that we have federally to do anything about it, but with the other organizations, whether it is the CGAs or the certified management accountancy firms or whatever, what are you doing to bring these organizations together? Perhaps I can have an answer from each of you.
Mr. Byars: In the context of our efforts to promote a uniform high standard, the CA profession, particularly the Institute of Chartered Accountants of Ontario, was very active in working with the government in helping to establish the process that led to the Public Accountants Council and the establishment of the levels of competence that were required for those people to be licensed in Ontario. This is an activity that we hope to pursue across the country to encourage governments to the extent we can to adopt similar levels of competence, so there is uniform recognition over time.
Senator Fitzpatrick: Are you doing it with any other provinces at this time?
Mr. Byars: No, we are not at this particular time. This is an action we are trying to move forward with, but it is not significantly advanced.
Senator Fitzpatrick: For example, with the leadership the province of British Columbia and Alberta have taken in coming to the agreement, it seems to me it would be a pretty good target for your association to join with them and show how that uniformity could be established in your profession or a joint council could be established between Alberta and British Columbia.
We are looking for some leadership here, and over the years, the CICA has shown a lot of leadership in a number of areas. It seems to me this is something in which you could provide that leadership again.
Mr. Byars: Thank you for the encouragement. That is something we certainly hope to do, and we will endeavour to do. The important part from our view, though, is, to leave a message that might endure somewhat through the day with you, that is, that you cannot think of protection of the public as a barrier to trade. Essentially, it is important to recognize as a fundamental principle that regardless of what is done to eliminate perceived barriers to trade internally, or externally, for that matter, we must ensure that the interests of the public are protected.
Senator Fitzpatrick: That goes without saying. That is what you are there for, so we are not suggesting that. However, I am suggesting that instead of a race to the bottom, you, by example, and by lobbying and negotiation, create a track to the top.
Mr. Byars: Using the TILMA document as an example, I would suggest to you that we cannot leave it as something that goes without saying. The necessity of assuring that the public interest is protected has to be said.
Senator Fitzpatrick: We agree it has to be said, but I do not understand what impediment that has with respect to lobbying or negotiating or working with other organizations or the provinces to establish the standard that you are looking for and that we are all looking for.
Mr. Byars: We certainly will continue on that road.
Senator Fitzpatrick: What discussions do you have with the Certified General Accountants Association, for example? Do you have any joint meetings or joint discussions with them on these same kinds of objectives?
Mr. Byars: There are informal meetings from time to time of the senior personnel. We do not have a unified effort in that direction at this point in time.
Ms. Hubert: The CICA coordinates many provincial efforts for cohesion, making uniform processes, to make it easier for interprovincial movement of people. The CICA coordinates many efforts at the provincial level for that. We play a key role in coordination.
The firms abide by common standards, and we do recruit people from the various professions in the firm. As long as they are willing to abide by the standards required to practise public accounting, we would let them do that, but they must abide by the standards we have in the profession at the moment. That would be national and international policies that we would have to respect, depending on which firm you are talking about, so we do take action at various levels and do lobby at various levels, but we still have a long way to go. That is the beauty of our federation.
Senator Moore: With regard to the Public Accountants Council, you were asked who is on this council, and you said that it was comprised of people from both areas of public accountancy and some lay persons. What are the two areas of public accountancy?
Mr. Byars: If I used the phrase ``two areas,'' it was not what I intended to say. In the case of the Public Accountants Council, there is representation from the Institute of Chartered Accountants of Ontario, from the Certified General Accountants and the Certified Management Accountants, as well as a larger number of public representatives designated by the Province of Ontario.
Senator Moore: Does the Public Accountants Council ensure that uniform standards of qualification and regulations are maintained by people who are chartered accountants and CGAs?
Mr. Byars: For people who are licensed within the province of Ontario to offer their services to the public as an accountants.
Senator Moore: Regardless of whether they are chartered accountants or certified general accountants; correct?
Mr. Byars: Exactly.
Senator Moore: Do the CGAs have national standards like the CAs do?
Mr. Byars: I cannot speak to that, sir. I do not know enough detail.
Senator Moore: You never asked that at any of your informal meetings? Did no one ever ask the standard guys?
Ms. Hubert: When we were in school together 23 years ago, we were all using the CICA standards for learning the accounting profession.
Senator Moore: Do you mean both the CGAs and the CAs?
Ms. Hubert: All the accountants sitting in the room had taken classes for accounting. Then we moved on to different types of exams to move to different profiles of professions, but when we learned, it was the CICA standards whether auditing or accounting.
Senator Moore: Is a CA a higher qualification than a CGA?
Ms. Hubert: It is a different qualification, to do something different, to attest to financial statements.
Senator Moore: What can a CA do that a CGA cannot? Does it involve signing audited statements?
Mr. Byars: The process of education, training and experience is different. In Canada, chartered accountants have a uniform educational process, and their qualification includes sitting for a uniform evaluation, which is the same examination procedure across the country. There is required articling time, which includes an extensive amount of experience directly in audit activities. Those are qualifications associated with chartered accountants.
Certified general accountants have qualification procedures, but they are not identical.
Senator Moore: That does not really answer my question. I understand your reluctance. We will have to get the CGAs.
Senator Fitzpatrick: You said 22 years ago when you finished your courses, you all wrote the same examination.
Ms. Hubert: No, I said when we were taking accounting classes, we were learning the same accounting standards or auditing standards, but to get my designation, I had to do something different. The exam, the articling and the experience to get my CA was totally different, unique.
Senator Fitzpatrick: Do you believe your profession is different from the CGA profession?
Ms. Hubert: I believe I did learn things, both through articling and the studies I had to do for the exams, that gave me skills that may be very different from a CMA, for example, who learned more management accounting for a different purpose. His question was more to whether we are better or not. We are doing different things.
Senator Angus: The question is what the different things are.
Senator Fitzpatrick: What is the difference between you and a GCA?
Ms. Hubert: We have standards for the public accounting piece, where one must meet specified qualifications and do some articling that a CGA or CMA would not necessarily have to do. We recruit many young professionals every year from the universities. Basically, we take all the talent available from universities every year. These young people learn a lot in university, but in our offices we continue to teach them. My business is developing people. That is what we do in practice. These young people get two years of that, before they write their exams. They have to do that before they can get their CA, and that is learning. That is the fundamental difference between the three accounting designations.
Senator Fitzpatrick: Do you think there is a possibility of harmonizing CAs with CGAs as a broader designation so one could work towards getting these standards uniform and national?
Ms. Hubert: Some provinces have made the attempt but did not succeed achieving the end result. There are three professions that make choices at the outset as to where they want to go, and the members of the professions were reluctant to make different choices at a later stage in their career. There were unsuccessful attempts made at the provincial level.
The Chairman: Thank you. I think you can sense, Mr. Byars and Ms. Hubert, a feeling of uneasiness among all senators. They are trying to come to grips with this question of harmonization and the cost to the economy. Our next witness will be the Conference Board of Canada. We have looked at some of the things they are proposing, one of which is an objective measurement of the benefits of greater protection for the consumer as opposed to the cost of the service.
There are a number of highly developed econometric models — for instance, Mr. Byars, your firm sells goods and services, I assume. They are measured in the marketplace by other firms providing similar goods and services.
We know, and this is indisputable, that Canada's developed production of goods and services is getting less competitive and more costly compared to the global marketplace. The only way we can get at this problem is to somehow have an econometric measurement of the costs to the economy of increased standards. We are not against flat standards. We are all in favour of standards and regulations. The question is, what do they cost the consumer? What do they cost the economy?
Unless you can help us measure the effectiveness of your regulations on the one hand and the cost to the consumer and the economy on the other, we are having difficulty with this. In other words, we want to look at statistics. Our committee — the Banking, Trade and Commerce Committee — wants to look at numbers, and you are in the numbers business. We are trying to get at the numbers to figure out why Canada is lagging behind.
Quite frankly, with all due respect — and I only speak for myself here — I would hope you will provide us with more assistance with this, because to talk about objective international standards without quantifying them in some fashion does not help us in our analysis as to why Canada is falling behind.
Ms. Hubert: There are standards, and there are standards. If there are multiple set of standards for the same thing, it creates inefficiencies, and all our clients would see that. If there is one set of minimum standards that are easy to use and easy to apply for everyone, it simplifies everyone's life and allows them to understand what is required and shoot for an end result in an efficient fashion.
If we can simplify and harmonize the standards — and I realize much of this is provincially regulated so there are limitations to what we can do federally. Clearly, if we have a simple set of standards for the key things that matter in the public interest, that would have a beneficial impact on the economy as well as productivity.
The Chairman: That remains to be seen. Mr. Byars was very candid in saying that you have not thought about measuring this in econometric terms, to give us a sense of protecting the public interest on one hand and the provision of your services on the other.
I offer a brief anecdote, and then I will conclude this portion. I know legal services face the same problem in Toronto, where I practised law for many years. The cost of legal services was increasing by leaps and bounds as a percentage of commodity issues, such as housing. Essentially, there was huge competition. The lawyers made the argument — and I was part of that group of advocates — to say, by the way, we must have high regulatory and tariff fees in order to protect the public, and we must get opinions.
When it came to real estate, which is essentially a commodity product, there was tremendous competition. Suddenly, the developer and consumer decided to look at the cost of legal services as a percentage of their product, and they had to bring it down.
I assume, Mr. Byars, in your firm, your CEO looks every day at your G&A. He takes a look at your accounting and legal services, and is determined to get them down. We are not doing it firm by firm but for the economy as a whole. How do we reduce the G&A services and cost of services, in order to make our services, which are lagging, and our export goods, which are lagging, competitive in the international marketplace? That is our problem.
That is hopefully your problem, and hopefully you can provide us more assistance. If you want to return with written documents to assist us in our quest to find out the perfect balance, we would welcome that.
Mr. Byars: If Canada's chartered accountants can be of assistance in this process, we are certainly willing to do so at any time.
The Chairman: Please provide us with numbers.
Mr. Byars: Having been one who has spent many years in the retail industry, I am very familiar with the whole concept of cost. One should, in fact, have a very stringent focus on costs at all times.
In reality, one must think in terms of net benefit. I would say to you, in the case of public accountancy, particularly as it relates to reporting issues of companies who source their capital on the capital markets, whether domestic or otherwise, we have a system in this country and our profession, as an example, where each provincial institute undertakes a practice inspection of those members who are carrying out public accountancy. As well, we were a strong participant, the advancer of the original ideas that led to CPAB. The Canadian Public Accountability Board audits the auditors, if you will. In the U.S., PCAOB will come in and, on top of that, audit any auditors who are auditors for interlisted companies.
One would look at that and recognize a significant piling up of what arguably might otherwise be seen as being redundant protections. However, I would hold forth on the other side — that if that process ensures that Canada does not suffer the equivalent of an Enron or WorldCom crisis, then is not the net benefit greatly in the interest of the public? Is that not an exercise that is certainly worthwhile in the end?
The Chairman: Some banks and others did suffer consequences of Enron with very high accounting standards. Therefore, I do not think that is a complete answer.
Senator Fitzpatrick: I have a clarifying question.
With respect to your reference to Manitoba and the fact that without requirement of proof of education and experience or other evidence of required competence, you would be able to audit. Are you saying that one does not have to be a chartered accountant to audit a set of accounting books for a company in the province of Manitoba?
Mr. Byars: To use the words of the president of the Institute of Chartered Accountants of Manitoba, in a conversation I had with him some time back: ``In Manitoba, even a bus driver can be an auditor.''
The Chairman: Thank you very much, Mr. Byars and Ms. Hubert. Your presentations have been very interesting and very provocative.
I want to welcome our next witness. This is the continuation of the Standing Senate Committee on Banking, Trade and Commerce on interprovincial trade barriers that provide barriers to productivity and efficiency in Canada. Welcome, Mr. Hodgson. We have your brief and we also have noted a very cogent article in this week's Maclean's magazine that sums up a number of the issues that this committee has addressed. We have looked at the question of demographics, we have looked at the question of productivity, and now we are looking at the question of interprovincial trade barriers, all of these with a view to try to demonstrate to the Canadian public, to the Government of Canada and to the private sector how we can improve the productivity and our place in the world.
Regretfully, based on your analysis and the analysis we have made otherwise, we are falling behind. We are falling behind the United States, and we are falling behind in the world, in terms of productivity. Therefore, rather than raising our productivity levels and prosperity for all, we are falling behind even in terms of real income.
Perhaps we can turn it over to you, Mr. Hodgson, and I want to thank you very much for taking the time today to attend here to talk to us.
Glen Hodgson, Vice-President and Chief Economist, Conference Board of Canada: I wanted to start off by showing you the Maclean's cover. On my way here, I dropped by International News on Sparks Street to get a copy, but they did not have one. I hope that is because they are sold out and that they are ordering even more copies. You can imagine how gratifying it is to do a piece of research over three years, and I have spent most of the last year writing a final report, which will be made public in January. We are publishing our Canada project research in three volumes plus an executive summary. The launch date for the first volume, of which I am a co-author, will be January 17. We will do it at the National Press theatre.
The Chairman: Let me stop you right there, Mr. Hodgson. These hearings will continue over into the new year. We would be very interested after you have tabled those reports to have you come back and amplify your testimony, because regretfully today we only have about 35 or 40 minutes and we want to take much more time with you. We will make some time for you to come back and this will be a prequel to the more interesting information that you might provide in your final conclusions in January.
Mr. Hodgson: If you are going to invite us back, I would strongly encourage you to invite myself as the champion of volume one, my colleague Gilles Rhéaume, who is our vice-president of public policy, who is the champion of the second volume, which is looking at our resource economy and how to capture as much benefit as possible from the resource price boom we are going through, which we do not think will last forever, and the third volume is Anne Golden herself, my president, who has been the champion of that. We would be thrilled to come back and speak to the committee.
The Chairman: We know Anne Golden quite well; we would welcome all three of you. We will make arrangements to provide a suitable time, and we will try to give you ample time to go through your report.
Mr. Hodgson: Fabulous. I will take Maclean's as read. You can imagine how gratifying it was in a personal sense to be cited 10 times in Maclean's this week. That was kind of fun.
The Conference Board of Canada, CBOC, published a report last May, with a fabulous title — ``Death by a Thousand Paper Cuts: The Effect of Barriers to Competition on Canadian Productivity.'' It is one of the more catchy titles around. It is a comprehensive cataloguing of all the barriers we could discover. In fact, what we discovered is there is no comprehensive catalogue of all the barriers. We did our best within the resources of CBOC to look at barriers that exist to competition, to interprovincial trade, between Canada and the United States as well. As you mentioned, Mr. Chairman, it is very raw; it is truly primary research. It is an economic test trying to measure the impact on productivity, testing the difference between prices in the United States and Canada, assuming that non-tariff barriers are the reason prices are higher in Canada. I can speak about that if you are interested.
Third, I have circulated as well, and I hope the clerk has this, a very short excerpt from volume one of The Canada Project, which will be published in January. I have extracted the executive summary on the second of five broad recommendations we are making, or broad strategies we are outlining. I have also given you in detail the actual recommendations from the report. I will turn to the third page and point to the first recommendation.
We believe governments need to tackle the vast web of regulatory and other non-tariff barriers that currently pervade the Canadian economy and reduce barriers to competition in specific sectors. Then we list some sub-elements: Reinvigorate, removal domestic barriers, use tools that are used internationally, use bilateral agreements. We strongly endorse and welcome the agreement between B.C. and Alberta, for example, which hopefully will become a hub or a real focal point for the effort to eliminate barriers between provinces.
Even there maybe I will mention that it is revealing. If you look at the B.C.-Alberta, at the TILMA agreement itself, it is quite striking that the exceptions at the back are as long as the agreement itself. There are actually 62 categories of labour, which is achieving certain standards, where they have a three-year ramp-in period, and it goes from acupuncturists to water well drillers. Despite the best efforts of the B.C. government and the Alberta government to have alignment and to reduce the barriers, they are still left with a three-year roll-out plan before they can actually say that lawyers who qualify in B.C. will qualify in Alberta. Imagine from acupuncturists to water well drillers, what an array of categories that still exist. If that is what exists in the provinces who have the greatest intent to reduce barriers, imagine what it is like if you stretch that across the whole Dominion. I will stop there.
Senator Angus: We have all read the Maclean's report, which I think should be required reading for everyone. You mentioned The Canada Project. We are certainly looking forward to that and hopefully you might come back and see us.
I thought it would be a good introduction to my line of questioning to simply read this quote from you from the Maclean's article, at page 42:
``Canada is trying to compete in a global economy,'' says Hodgson, ``but we make it difficult for companies to even do business in a neighbouring province.'' Fully one-third of all businesses surveyed by the Conference Board said non-tariff barriers hindered their competitiveness, while 26 per cent said they had lost business because of them. The barriers are especially detrimental to small businesses...''
I just wondered if you could go into a little more detail and include, if you like — because you were in the room earlier when I was questioning the accountants — any comments you might have on this business as between the three accounting organizations in Canada. More particularly, though, the tangled web of so-called non-tariff barriers, each level of government forces companies to re-register their business and re-licence their staff, subjects them to its unique approvals processes, procurement policies, technical requirements and environmental standards and establishes its own disclosure — in other words, each province — and privacy regimes, often for the sole purpose of protecting a local industry from competition.
I think is basically your statement as to the reality in Canada, and I would like you to highlight two or three examples perhaps to bring it into better focus.
Mr. Hodgson: First, the source of the quotations in Maclean's comes from chapter 3 of the barriers report. We at the CBOC try to be objective, independent, arm's length, taking a view of things from an independent perspective. We work by virtue of doing database research and also by surveys. We have the benefit of having thousands of firms that are subscribers to our services. It gives us a great pool of data that we can turn to. We did a survey of business leaders. We sent it out and we got hundreds of responses and that is effectively what they told us. That is the starting point.
I frankly cannot comment in detail on the accounting industry. I can say, as an economist, where there is no shingle, you do not have to qualify to become an economist. Certainly, in my business, we are tested by the market. If you are good, you get paid more and you get more work. If you are not good, you become a bus driver, to go back to a story you were telling earlier.
The fundamental purpose of having standards is really for efficiency. We have criminal law and civil law for people who are doing things that are either illegal or harmful to business. The reason I would argue that we set standards is for efficiency's sake because that is a long and painful process. It is expensive and very drawn out. Thus, it is efficient for societies to set standards to protect the public interest.
The real issue is the commonality of standards and the process you must go through to achieve those standards. From where we sit, both through our own surveying of all the barriers that exist across our economy and from the feedback we get from our client base, I can see no logical reason to have 13 different standards across the federation.
One of the things we are calling for in our final report — I hope it becomes the most powerful line in my volume — is the need to create a single Canadian market. We have effectively chopped up our national economy. That is perhaps one of the deficits of being a federation, one of the challenges of having multiple tiers of government.
The Chairman: Mr. Hodgson, you must have been at all of our hearings. For the last two years, we have said that we do not have in this country a national marketplace, that we have a fragmented marketplace, which is why we are falling behind.
Mr. Hodgson: You are absolutely right. As I thought about how to create a brand around this, an image, I was talking about a national environment. In fact, it really struck me that Europe is eons ahead of us right now. They are trying to do it across 27 independent states, but they have committed themselves to creating a single European market. Why can we not do that in Canada?
Senator Angus: We are also independent and objective in trying to find a way forward. We are amazed that this has subsisted for so many years and that it even took a backseat to the FTA or the NAFTA. Do you see a national will to obviate these barriers?
Mr. Hodgson: I think I can see the beginning of a creation of a national will. The leadership was shown by British Columbia — it was Premier Campbell who reached out initially to Alberta to get the ball rolling. There is a core of national will beginning to develop. I would argue that part of the reason it has happened over the decades is that there is no single owner. There is no one person who has stood up and said, ``This is my file. I will be held accountable and try to achieve the optimal outcome in terms of a system of standards and processes that will protect the public interest but also ensure that our economy is as competitive as possible.'' I am a natural optimist. I am looking for positive signs.
What has happened in our two most western provinces is a wonderful start. We hear rumbles as we travel across the country from many other provinces who are now taking interest in this and wanting to engage us and work with us to try to identify the benefits. I think we are at the beginning of a very positive process.
The more energy you can bring from your independent perspective, the better, because we have to raise it as a national priority and really place productivity at the centre of our national economic agenda.
Senator Angus: You have figured out my next question, which was going to be: What can we do? In out about three hours from now the current government is coming out with an economic statement, which is rumoured to highlight the need for greater efficiencies and improved productivity, always conscious of our role in the federal domain.
Based on your knowledge of how the federation works, could you outline one or two things the federal government could do?
Mr. Hodgson: First, I have had a deep engagement with the Department of Finance over the last number of months. They have had a chance to see various drafts of the report. I have talked with officials and the minister's staff. I am part of the circle of economists who get to give gratuitous advice to the minister early in the budget round. I am equally hopeful that the message around competitiveness and productivity has been heard, which is an important turning point or inflection point in our national commitment to productivity.
It is not entirely within the purview of the Minister of Finance because he or she cannot fix everything. However, there are a number of things that could be done. There are things in the tax area, for example.
The Chairman: We have heard this before from the accountants and others. However, there is provision for federal power to be exerted when it comes to interprovincial trade. That federal power is strong and unquestioned. It started with Confederation. It is in the BNA Act. The deal, essentially, of Confederation was interprovincial trade. This committee was established in 1867 to review banking, trade and commerce. It was not banking, trade and commerce in Lower Canada or Upper Canada; it was across the country.
Why do you feel there is some reluctance on behalf of successive governments to grab or exercise the jurisdiction that they do have, which is quite powerful? Have you analyzed that question and taken a look at what successive governments have done at the federal level to exercise this power?
Mr. Hodgson: I think there is a political answer — and not being an expert in assisting political thinking, I will not go there. The more accurate answer is around the complexity of addressing the issue, the fact that there is a matter of overlapping jurisdictions. I could not agree more, senator, that it is critically important that the federal government show leadership on the national productivity issue and take on the need for microeconomic reform in many areas.
The Chairman: We heard earlier today from the accountants that they were called to account by the Competition Bureau precisely for that purpose. That is because the Competition Bureau has jurisdiction to deal with anti- competitive practices. So there is power in the federal government to exert itself. When we look at this structure, the Council of the Federation, and we take a look at the progress, it is very slow. It is a very comprehensive program. There seems to be two solitudes here. They are not between Quebec and Ontario but between the federal government and the provinces acting in some sort of concert to achieve the same objective, which is productivity and growth.
Mr. Hodgson: From our side, the one thing we can do at the Conference Board of Canada is to draw upon our analytical capacity and our ability to engage business and try to identify how important this is.
The Chairman: You have spoken to Finance. You have spoken to the federal government. Have you spoken to the provinces about this apparent gridlock between the two?
Mr. Hodgson: We speak to the provinces every week. In fact, we sometimes speak to them on a daily basis. We are being invited in right now by the provinces.
Over the next three to six weeks, I expect to have a chance to speak to provincial cabinets and to senior groups of officials. We have done a briefing in Ontario, for example, on The Canada Project. Officials have heard the message loud and clear. The message is the need to establish one national platform. We will happily be an oracle around our own research and repeat the mantra over and over again. Part of why we exist as an organization is to exhort people to do the right thing.
There are a few ideas that I have shared with officials and with the minister's staff.
Senator Angus: Such as?
Mr. Hodgson: Very specific things directly within the power of the Minister of Finance. He is the one who sets the budget. For example, he could allocate more resources to post-secondary education. It is a classic case where the federal government could step up and ensure we have adequate investment in the creation of human capital going forward.
He could allocate more resources toward infrastructure, particularly in our cities, but also intercity and at the border. Right now, we have a massive national infrastructure deficit estimated at anywhere from $60 billion to $120 billion, which in itself is revealing because we do not know how big the deficit is. We have tried to encourage governments to engage us to measure the size of the deficit. I hope we can do that on an ongoing basis.
Imagine the productivity lost by people sitting on the 401 every morning in Toronto, where it now takes an hour to an hour and a quarter to get to the office. Save that time and the physical energy consumed at the same time.
The Chairman: And the pollution.
Mr. Hodgson: We will give advice on our final report on tax reform. There are a number of other think tanks. I would point to C.D. Howe and the work Jack Mintz has done, which I think is very good work. I see no reason for us to duplicate that. We have offered advice on things like reducing the effect of marginal rate of tax on low-income workers.
Senator Angus: Has your final report on tax reform come out yet?
Mr. Hodgson: That is part of the package that will land on January 17. I am showing you a little bit of ankle right now. As I said, I would love to come back and talk in more detail.
The Chairman: We have been groping this problem for some time, so we welcome a new target.
Senator Goldstein: The questions of the deputy chair have largely pre-empted what I was going to ask, but I still have a couple of narrow issues to deal with, one dealing with financial services.
There are provincially incorporated credit unions, cooperative movements especially in Quebec and elsewhere, which, because they are provincially incorporated, are unable to provide their services in any other province unless they go through the entire registration process all over again in the other province in which they want to work. The result of that is that if there are two factories side by side, both straddling the border, and the workers in those factories neither want nor should have credit unions available to them for credit counselling and a variety of other things that credit unions do and that banks do not do, they are unable to do that unless they have duplicate registrations. That is a reflection of the problem of having as many regulators for financial services as we do in the provinces and territories.
Can you think of any mechanism that will help overcome that, short of the impossible task of convincing provinces and their respective regulators that they should have a single financial regulator?
Mr. Hodgson: I wish I had a quick fix, but I do not think there is one. You have to go to the core principle, which is barriers to competition being created through regulation. We do say in our report that it is time to have a single national securities regulator. We also call upon governments to create a much more competitive marketplace for financial services. That may require us to have a fundamentally different view of how our financial services industry operates within this country, but we think the time has come to have an integrated national market when it comes to availability of credit and access to capital for investment.
I have had a chance to talk with senior managers in the Desjardins Movement in Quebec. They now understand that their marketplace is capped. Quebec has a rapidly aging population. They know that there will not be spectacular growth rates available, so they themselves are looking for ways to offer their services to business outside the Quebec boundary. They are now chartered in Ontario, I believe. They are even looking for ways to get engaged in international business.
Those that benefited from protective regulation in the past have themselves hit a wall in terms of their business model. Arguably, they would benefit from being freed up to compete and operate in other jurisdictions.
I do not think there is a quick fix; I do not think there is a halfway house. Sometimes you have to go cold turkey and go right to the best solution, which would be a single national regulator.
Senator Goldstein: The United States has a not dissimilar division of powers, and it has, admittedly, the trade and commerce clause, which tends to supersede state powers.
Mr. Hodgson: The U.S. has also moved a long way over the last decade. Under Glass-Steagall, the barriers were much higher than they are today. Banks are much more free now to offer banking services across all states.
Senator Goldstein: How have they managed to do it with a similar constitution, whereas we have not?
Mr. Hodgson: That I cannot answer, because I am not an expert on the process the U.S. has followed.
Senator Goldstein: Who could tell us about that? You do not have to answer now, but you could communicate with the clerk on that.
Mr. Hodgson: I suspect that officials at the Department of Finance and at the Bank of Canada would be knowledgeable of that.
The Chairman: We will be calling the Commissioner of Competition. He will deal with the legal basis for his powers, which will open up the door for us to look at this from a constitutional standpoint.
Senator Goldstein: I should like to go more deeply into that. Perhaps we have to draw some examples and some help from how the Americans have operated to decrease their barriers. I do not know if the Bank of Canada can do that for us.
The Chairman: We will look at that question, but it would be a good idea for us to draw upon officials in Canada to find out the jurisdictional and constitutional opportunities. We will certainly look at that.
Senator Fitzpatrick: Thank you for the work you have been doing. Congratulations on getting the communication assistance that you are from Maclean's magazine.
We keep talking about reducing barriers and increasing competition and productivity. That is motherhood. I am sure everyone around this table agrees with that. However, it seems to me that, whether they are government agencies or professional agencies, that reduces to whether they are, to an extent, protecting their own territory. I am thinking about various professions. If the accounting profession is still here, I hope they will not take offence to this, but in that profession the different designations seem to protect their own territory. To an extent, the legal profession does that, and certainly the medical profession in the different provinces. Our securities commissions do the same thing, as do the electoral distribution systems.
It is a continuation of the work you are doing here, but have you any wisdom to provide us with as to how we can get these organizations to provide leadership on this? They all have professional organizations. They are all national in terms of their professions. The governments have the council of the premiers. It seems to me they just have to get to work at it. Please correct me if I am wrong or give me your comments.
Mr. Hodgson: You are absolutely right. This goes back to the earlier question about whether there is any change in attitude among the public and among leadership in the country. What has happened between B.C. and Alberta is critically important. They have committed to reduce differences between them. Suddenly, we will have an open and free market for professional services between the two.
There is still the question about adequacy and whether the standards themselves are accurate and whether they are actually barriers to entry, as economists call them. Barriers to entry are designed during an economic rent, to use the economic language. We do have an inflection point in the national attitude toward this.
I find the whole debate about creating a national market very analogous to what I lived through for 10 years in the Department of Finance. I was there in the bad old deficit days when we could not muster the courage, the national will, necessary to tackle the deficit. We almost had to have a financial crisis. Mexico hitting the wall in 1994 was the best thing that every happened to Canada because it got us over the hump. It got the public ready to move. You saw how quickly the turnaround happened. We went from a $40-billion deficit in 1993 into surpluses by 1998. The same could happen here if we can create the national will, but finding that elixir is very difficult. Making the facts speak, constantly laying them before the public and our political leaders, is one way to do it.
We should play off the fact that our aging population will create a labour shortage in our country. We are already seeing that in the Alberta labour market. The unemployment rate is 3.4 per cent in Calgary and businesses are screaming out for skilled talent. What better opportunity to free up skilled labour in areas where perhaps we do not need 13 regulators to do something any longer. Imagine if we could redeploy those people in a more positive way. Our report will talk about the need to fundamentally rethink our workforce.
The Chairman: I hope you will refer to our study published this year on the demographic time bomb, because we covered exactly the same ground. That was another issue we spoke of as having an important impact.
Senator Fitzpatrick: If we can take advantage of our presenter and his colleagues to make future presentations, that would help us a lot. We are on the same track and we want to provide, be it through talking or whatever means possible, as much incentive and motivation for this to happen as we can. It is a question of British Columbia, Alberta, the federal government, this committee, the Conference Board of Canada and others pushing on this. We are not in a crisis yet, but if we continue to lose our productivity and competitiveness, we can get there.
Mr. Hodgson: We are not in crisis yet. I am quoted in Maclean's as saying that nothing is really broken but that nothing is working optimally either. If we allow ourselves to wander along on a long and slow decline, we will face crises at some point.
We did the background fiscal work for the Council of the Federation last spring, doing a 20-year forecast on the fiscal outcomes for all the provinces and for the federal government. The combination of aging populations and continued growth in health care spending will create a fiscal crisis for the provinces. After about 2015, they go deeply into deficit and continue to go down.
One way to ensure that that does not happen is to boost the national productivity performance. We could create more wealth that will pay for the social goods we want as a nation. Crisis not yet, but a little bit of arithmetic can reveal the potential crisis down the road.
Senator Tkachuk: This has been an interest of mine for quite some time, ever since the dollar was at 65 cents and interest rates were at 2.5 per cent. That made it easier for us to solve the deficit problem, but I think it hurt our productivity. We are paying the price for what happened during those years and it is a question that was often discussed here with the Governor of the Bank of Canada.
With regard to education, you mentioned two things — education and infrastructure. Education is not part of the federal jurisdiction. What guarantee do we have that extra money for education to provincial governments will mean that the money will not be spent on culverts, for example, rather than on education. Are you advocating that we directly give money to education? Would provinces even accept that?
Mr. Hodgson: First, we seldom get into the mechanics as to how transfers operate. We try to identify needs and where the greatest payback is.
Senator Tkachuk: I know, but you said something interesting. The question was: What could the federal government do? You leapt to two provincial and municipal areas. You went to education, which is not in our purview. We may write the cheque but someone else delivers it.
Mr. Hodgson: I would argue that the federal government has already had significant success investing in post- secondary education through the various granting chairs. There are things that be done directly to students, through loan programs to ensure that everyone qualified can go on to school.
We had research done this last year — and actually published a book on federalism, entitled, Canada by Picasso: The Faces of Federalism, authored by Roger Gibbins, Antonia Maioni and Janice Gross Stein. We were looking for ways to rethink federalism, rethink the nation without actually having to deal with the Constitution, which we think is a hopeless path to go down. Mr. Gibbons' essay for us was very instructive, the premise being, if we were to write a Constitution today, how would we divide the labour between the federal and provincial levels? It focused on person versus place. People are highly mobile now. I have lived in four different cities in this country and in the United States for three and a half years; I am a typical Canadian. People change jobs all the time, move between provinces all the time. Federal governments arguably should invest in people, because they are affordable capital that moves, as opposed to health care, which is delivered in a place and that becomes a provincial responsibility. It was a very interesting way of looking at the division of labour between the federal and provincial levels. That is why I suggested something like post-secondary education.
I do not know why, for example, a Saskatchewan taxpayer would invest heavily in a smart young person at the University of Saskatchewan or University of Regina only to have that young person get his or her first job in Calgary, which you and I both know is increasingly a phenomenon that is happening. It is one of the challenges Saskatchewan will face in its future. However, if the federal government makes that investment, through granting programs, through some form of transfer — maybe the issue is all around transparency, maybe it is about having clarity and how the money is going to be used and having full transparency to actually track the money. To me, that seems to be a much more reasonable way to approach the effective working of the federation, rather than you paying Saskatchewan taxes subsidizing an education, which is very valid, and unfortunately Alberta capturing the benefit.
Senator Tkachuk: All of that has changed in the last number of years. Students do not only attend a university in their own province. My son went to the University of Calgary. In addition, provinces have different rates of tuition. It is a lot cheaper to go to university in Quebec if you are from Quebec. In other words, there is no way that people are treated equally, so it makes it very difficult for the federal government to invest money in this, because you are investing my tax dollars from Saskatchewan but my son cannot take advantage of a cheaper tuition fee in Quebec. He has to pay a higher tuition fee in Saskatchewan.
Is it the fact that we are not educating enough people? Is it research? What is holding up productivity? I thought we had a pretty good success rate, as far as young people entering higher education in Canada.
Mr. Hodgson: We have a full section in our report dealing with post-secondary education and building up the body of research we have developed over time and identifying that, but I will give one piece of data.
We have seen, as a share of GDP, spending on post-secondary education fall in Canada from 6.2 to 4.9 per cent over the last 15 years. You are absolutely right, we have one the highest graduation rates from colleges and universities in the Western world, but that is not enough. We have to go beyond that. We have to ensure that people are getting cutting-edge skills and that we are developing leading-edge universities. That is why we look at something like the granting chairs, which I think the federal government has done well. It is an example where they have targeted the resources and are reaping benefits from it.
Senator Tkachuk: It is the quality.
Mr. Hodgson: I hear you on the issue of whose jurisdiction is it and the differences, and frankly those are other forms of barriers between the provinces.
Senator Tkachuk: You mentioned infrastructure. How did the federal government get into the business of fixing a pothole and fixing a culvert? What do people pay property tax for and provincial taxation rates, which, outside of Alberta, are pretty high in Canada. That money is supposed to be used for fixing highways, potholes and infrastructure. Why is the federal government involved in that?
Mr. Hodgson: My president would have much to say about this because of her cities chapter. We examined in this great depth as well, but the economist in me says that the fundamental issue is that we have not given our cities enough taxation power, enough fiscal capacity, to address the problems themselves. They are still very much the wards of the provinces. If a federal government wanted to intervene, it has the challenge of giving it to provinces and distributing to cities. We have some fairly hard-hitting views on how the funds should be allocated among the cities as well, and not on a per capita basis. There is a compelling case for giving more to the major cities in our country because they are the locomotives of growth going forward. If you want to examine that in depth now, I am quite happy to.
Senator Tkachuk: My view is this: The more money that comes from the top to the bottom means there is less responsibility by the actors at the bottom to do the right thing with the money they have.
We have governance like that in Canada, with reserves, where the cheques are sent, but unless the person who is paying the money is figuring out how that money is spent in that local municipality, the more money we send to the cities, the less responsible they will be with that money. We will have twice the number of civil servants and higher paid managers; that is what will happen with the cash. The money should be given to the people through lower taxation, and then if the city needs more money, they can tax them.
Mr. Hodgson: As a first principle, I agree entirely that those who spend should raise the revenues. However, I would also point to the fact that our cities do not have things like sales taxes and income taxes, which exist for cities elsewhere around the world. That is why those cities are ultimately in better fiscal shape and why their infrastructure is in better shape than ours. They are still very much dependent upon the other two levels of government for transfers; and those transfers, we argue in our third volume, have been woefully inadequate for about 20 years now.
Senator Moore: With regard to the national securities regulator, you mentioned that someone in Quebec acknowledges that they have pretty much capped their potential to raise capital in the existing structure and that they see the wisdom of a national single securities regulator and the benefits that could accrue to that province.
I have not heard anyone from that province speak out to that effect. Is there someone who we should hear from, from that province, or can you send us anything that would help us confirm that in your research?
I ask that because, every time we speak about that, it comes down to Quebec being not in favour of it. However, it seems from what you are saying, the economics are bringing that province, or the people in power, around to accept that fact. How do we get that information here in a public way to help us push that along?
Mr. Hodgson: It is not something that we had researched in detail. Our strength, of course, is based upon our research capacity. However, if you wanted to speak to someone about this, think about the leaders of the financial services industry in Quebec. Ask what their business plans are. In a province where our —
Senator Moore: This may be useful. Could you say that again?
Mr. Hodgson: I am talking about the leaders from the financial services industry. The Quebec market, as you know, is quite different than every other market in the country. It is much more dominated by Quebec-based organizations, and the Caisse Populaire movement is very strong there. If I am a good businessman in Quebec —
Senator Moore: Do you think they would be more amenable than five or 10 years ago?
Mr. Hodgson: You will have to ask them. However, if I were giving advice to the head of a Caisse Populaire in Quebec, knowing that your population is aging quickly and that the dynamism in your home market may not be as great as across the national economy — it is natural for business people to look to grow. That may well take you into an examination of the regulatory structure and whether you want to have a more flexible and open structure.
Senator Moore: If such a single national regulator were put in place, how long would it take? How long before the markets reflected the benefits of that? Is that something that could be done in five years, one year? If the will were there to do it, how long would it take to implement that?
Mr. Hodgson: It all depends on how much will there is. Look at B.C. and Alberta — the TILMA agreement.
Senator Moore: I see that as constructive. They were not so much in favour of it, but now I think this might bring them around, and I do not hear that kind of agitation from them.
Mr. Hodgson: They have really permitted a three-year adjustment period for the professions identified, where differences still exist between B.C. and Alberta. That is not a very wrenching change; three years is quite a long period of adjustment.
Frankly, it all comes down to how much will power is there. You could do it overnight. You could send people to room to draft it and in two weeks have a single standard, if the will existed to do that.
I have represented Canada in international negotiations multiple times when I was at the Department of Finance and EDC. We created the European Bank for Reconstruction and Development in three months. We went from the fall of the Iron Curtain to the EBRD charter in three months, but I spent three years negotiating an environmental agreement at the OECD. It was purely a difference of political leadership and willpower.
Senator Moore: I am very interested in post-secondary education and I am interested in your comments. The federal government has been in the education business almost since its inception. We sort of say it is a provincial jurisdiction, but the federal government probably puts about $8 billion or $9 billion a year in post-secondary education and research.
I have been advocating in the Senate on different occasions that we should have a separate transfer, carve the education money out of the Canadian Social Transfer, so we can have that accountability that you are speaking about here, which I think Senator Tkachuk mentioned.
We had a situation recently in Nova Scotia where $28 million was earmarked for infrastructure, because some of these facilities need this money to bring the buildings up to code — make the whole thing more efficient and thereby hopefully reduce tuitions. Instead, the province passed money out to the students — $400 a head for each Nova Scotian kid going to the University of Nova Scotia. That could be like a weekend party. That does not do it.
How do we get that money to go where it is supposed to go? We cannot let that sort of thing continue, because that type of political activity does not help the institutions and does not help the overall post-secondary situation. It is not long-headed thinking; it is not good thinking or good practice. Did you look at having a separate education transfer?
Mr. Hodgson: We have not delved into the mechanics. We were dealing with the high principles and getting the framework right. We would be thrilled to take that on if someone would pay us to do it. I think the key principle, which you have already touched upon, is transparency.
Senator Moore: How do you achieve it? It is not beneficial if the money just goes to the provincial pot and is not applied where it supposed to go. We are saying that productivity and so much more is dependent upon education. Over the last couple weeks, we have heard about illiteracy rates in the country. In Nova Scotia, during Literacy Week, we learned that 19 of 20 kids applying for a job with Michelin in Nova Scotia could not get the job because they could not do Grade 9 math. Think about that — in the year 2006.
I am just trying to emphasize the importance of education and the role of the federal government. It is a huge issue, a fundamental one. The people asset you are talking about — that is who it impacts on.
Mr. Hodgson: I agree with you the federal government is already in the business, so it is a matter of finding the right mechanism so that the funds can be targeted exactly where they will do the most good. The advantage of the research chairs is that they have done that.
Senator Moore: That was a good help.
Senator Tkachuk: What about vouchers? Has the Conference Board done any work on that? Why not give the student the choice of where to go to university in Canada, which suits his or her needs.
Senator Moore: They will all want to come to Nova Scotia.
Senator Tkachuk: They may, that would be great. The universities would have to compete for that dollar, which would make better universities. That is just my belief, but why not? Why would we give the money to government? Why not give it to the students?
Mr. Hodgson: We have not studied the specific mechanics in depth. We do our research by going out and looking for best practice internationally. We would look at American practice, at practice in Europe and in Asia, and try to identify if there is a single best practice or a series of best practices that could be replicated here. That is a standard operating model for us.
The Chairman: We are all looking for the silver bullet. It is evident to us, having studied the subject matter, that the facts are clear. The question is how do we engineer political will and leadership in the country, both at the federal and provincial levels, to move along the path that is so clear now that no one can quarrel with it? There is no quarrel here. The question is how to deal with this.
Have you studied the other portion of what our study has been? We decided to do look at interprovincial trade barriers and then at the question of the new economic regions that are now forming along the border as a competitive model. It relates to the Pacific Northwest Economic Region, PNWER. We now have, in various states of formulation, essentially private-public partnerships along the border that combine commonality of economic interests and objectives.
The PNWER is the most advanced region in the country. We have been observing this for about a decade as it moves forward. Senator Moore attended their last meeting in Whistler about one week or so ago. Essentially, this is a statutorily endowed private-public partnership between Alberta, British Columbia, Yukon and the adjacent American states, all with a view to looking at common best practices and coordination, whether in research, nanotechnology, tourism, investment, the Pacific gateway, et cetera.
Has the Conference Board of Canada looked at this new phenomenon and tried to measure its effectiveness in terms of increasing productivity as opposed to the provincial structure that we have in the country that sounds increasingly more like a barrier to growth as opposed to an engineered growth?
Mr. Hodgson: The short answer is, no, but the longer answer is that in the last while I created a new centre at the CBOC. We call it the International Trade and Investment Centre. We are just now building up the research plan for the centre. A study of PNWER is not one the first five projects that we have launched but I am meeting with the investors in the ITIC next week, which include four provincial governments — B.C. and Alberta among them — three or four federal agencies and a number of private-sector players. I would be happy to do some work between now and next Wednesday and add that to the list of ideas that we could examine.
The Chairman: I suggest you do that because we have discovered in our work not only as members of this committee but also on the Canada-U.S. interparliamentary group that this has been a very forceful new phenomenon that is not well known to governments. I am absolutely confident that the provincial agreement between Alberta, British Columbia and Yukon had a great deal to do with trying to foster transborder relationships because they were the leaders of this in Canada. We have similar organizations right across Canada, from east to west, in various states of formulation, which depends in each area on political leadership. For example, a very carefully documented agreement was established between former Premier Harris in Ontario and Governor Pataki in New York State in the year 2000, but there was no political will by the successive government after Mr. Harris left office.
It would be very useful to the committee if you were to look at this because it will be a part of our recommendations. We would be interested in any comments or advice from the Conference Board of Canada before we complete our study on this.
Mr. Hodgson: In the three or four days before the meeting of the ITIC next week, I will look at it. Google is a remarkable research tool; you can learn everything in the world in 15 minutes.
The Chairman: Perhaps when you come back in the new year you could address that as well, because we will endeavour to look at leverages to increase productivity, and we think this might be a helpful lever.
Mr. Hodgson: In fact, Mr. Chairman, that sort of alignment is entirely consistent with other pieces of advice contained in our final report. The NAFTA has clearly reached its mature state, round one; the next rounds will be much more difficult because we will be entering areas such as services and non-tariff barriers. Any instrument that would improve the alignment north-south as well as east-west would be a step ahead. Clearly, our future lies in an integrated North American economy and we should be doing as much in our relation with the United States as we are doing across Canada to reduce the competitive barriers to allow productivity to blossom within the economy.
The Chairman: I looked at PNWER first because it is the most advanced of all the new engines of regional agreements.
Mr. Hodgson: It is nice to come to committee and get some advice.
The Chairman: Thank you for your information. We found this a very provocative and informative session. We will ensure that you and your colleagues appear before the committee again after your report is released, so that we can formulate something we all agree with.
Mr. Hodgson: We would be please to do that.
The committee adjourned.