Proceedings of the Standing Senate Committee on
National Finance
Issue 2 - Evidence - Meeting of June 20, 2006
OTTAWA, Tuesday, June 20, 2006
The Standing Senate Committee on National Finance, to which was referred Bill C-13, to implement certain provisions of the budget tabled in Parliament on May 2, 2006, met this day at 9 a.m. to give consideration to the bill.
Senator Joseph A. Day (Chairman) in the chair.
[English]
The Chairman: Good morning, ladies and gentlemen. This is the third meeting of our Standing Senate Committee on National Finance dealing with Bill C-13, the government's bill to implement certain provisions of the budget.
My name is Joseph Day. I represent New Brunswick in the Senate and I am chair of the committee. I am pleased to welcome you here today. Other senators will be arriving, but I take the opportunity to introduce my colleagues who are here. To my immediate left is Senator Peterson, representing the province of Saskatchewan. Next to him is Senator Mitchell, representing the province of Alberta, and next to him is Senator Stratton, representing the province of Manitoba. As you can see, we have the west very well looked after.
The witnesses that we have with us today, and we thank you all for being here, are: Leslie Wilson, Vice-President of Wee Watch; Ken Battle, President of Caledon Institute of Social Policy; Lana Crossman, Communications Manager of Canadian Child Care Federation; and Gwendolyn Landoldt, National Vice-President of REAL Women of Canada. Thank you for being here and helping us on this issue. We have asked you to limit your opening remarks to five minutes each. We will then have questions from senators.
Two other senators have just arrived. Senator Murray is to my right, representing Ontario, and Senator Fox, representing Quebec.
Let us start with Lana Crossman.
Lana Crossman, Communications Manager, Canadian Child Care Federation: Honourable senators, every day, 65 per cent of Canada's children under the age of 12 are delivered into non-parental child care by careful, loving parents for many personal and economic reasons. The Canadian Child Care Federation's priority is to work collaboratively with the Government of Canada to find strategies to support these parents so that they can access high quality child care for their children, based on national standards. Our mission is to achieve excellence in early learning and child care. We do this by building the capacity of the individual caregiver. We take solid research on early childhood development and we create tools that child care providers can use in their everyday practice.
We are just wrapping up a national conference now in Alberta that we are co-hosting with our affiliates there, child care organizations in Alberta. Close to 800 delegates across the country are there, taking workshops and seminars to help them in the important work they do in caring for Canada's children.
The Canadian Child Care Federation is deeply concerned about the proposed universal child care benefit act as outlined in this legislation. First, its name is misleading. It has no connection to child care and child care choice. It gives parents extra spending money, which is welcome, but it makes no mention of quality, no provision for availability, and there is no accountability.
In terms of quality, research tells us that high quality care is good for children's healthy development, but poor quality care can be detrimental. Children can experience high quality care in any setting: At home, at preschool, at a child care centre or in a family child care environment. We have members who represent all of those settings in our federation.
Research also tells us that the following characteristics are fundamental to high quality care: A high adult/child ratio, small group sizes, training and education for the provider, well defined spaces, a good relationship between the provider and the child, and significant involvement from the parents in the child care program.
Much of this research is highlighted in a recent Lessons in Learning published by the Canadian Council on Learning and I have included a copy of that in the information kits.
Earlier intergovernmental agreements have addressed these elements of quality, including the multilateral framework agreement signed in 2003 and most recently the bilateral Early Learning and Child Care Agreement signed in the past year with the provinces of Canada.
This proposed universal child care benefit act, however, fails to address any of these elements of quality. In fact, the word ``quality'' does not appear in the document. In terms of availability, this proposed act, in essence a parenting allowance, provides no guarantees that families will be able to access high quality care. For example, it does nothing to address the urgent needs in this city alone where 7,000 children are on waiting lists for child care. In fact, there is nothing in this act to support a long term, permanent commitment to early learning and child care across Canada. This is a commitment that the country desperately needs and one, in fact, to which it has agreed in several international agreements. Federal legislation could ground this commitment for Canada, but this bill does not do that. In terms of accountability, there is no accountability mechanism in this proposed act.
What, then, do the 3 million Canadian children who are in child care need as a critical investment? They need assurance that the government's investment in child care will actually make a difference to them. How will the government be accountable to these children, their families and to taxpayers across Canada? Will the government be able to show, one year after this legislation is in place, that children have more access to quality child care or that more families have been able to significantly improve their standard of living? How will Canadians know that child care choice has been served? Given the sheer numbers of children in non-parental care in Canada, the economic impact of working parents and all we know about the importance of the early years on children's development and the role that these children will play in Canada's future and economy, it is imperative that legislation address quality, availability and accountability.
The other part of this legislation dealing with early learning and child care speaks about the transfer of funds that were promised by the previous government as part of multi-year bilateral agreements, and this marks the end of the funding under that agreement. In effect, this legislation puts the brakes on plans to address, nationally, issues that are affecting child care across the country.
We know that there is a big issue concerning the training of child care providers and keeping them in the field. Currently, in early childhood programs, only 50 per cent of the students who go through those programs will stay in the field, due to poor wages and working conditions.
Finally, this marks the end of funding directed to infrastructure support to help these programs, to support them, to purchase and maintain equipment and so on. Provinces are already reacting to the end of this funding by cancelling or dramatically scaling down their child care plans. For example, Saskatchewan has had to cancel its plans for a universal pre-kindergarten program that would have benefited families with working parents and stay-at-home parents.
I have not spoken much about the economic impact of investing, or failing to invest, in quality child care. That is not the expertise of our organization. However, the senators on this committee have the financial expertise and the responsibility to look at this bill, and in particular for its financial implications. In my kit, I have brought some information that we have gathered from leading economists and I will leave that with you, but in brief, the evidence is clear. In terms of quality child care, it is either pay now or pay later. If children are in poor quality care and they suffer developmentally, that will have an impact on our health and education systems. If mothers must leave the workforce because they cannot afford quality child care, our labour shortage problems will intensify. According to the OECD, Canada's patchwork system of child care services is already contributing to the country's economic slide.
This debate has become highly politicized. Often, it is framed in a very artificial way that pits working mothers against stay-at-home moms. This does not do justice to Canadian families or to Canadian children. I ask you to take the opportunity to rise above this debate and demand answers to the difficult questions about this legislation. Does this bill address the reality of today's families? Will it really make a positive impact on them and the country as a whole?
On behalf of the Canadian Child Care Federation and our 21 affiliates across Canada, I thank you for this opportunity to contribute to the discussion on this legislation.
The Chairman: Thank you, Ms. Crossman. We have your materials. They have been distributed to each of the senators and we can assure you that the material will be referred to and given proper attention.
Ken Battle, President, Caledon Institute of Social Policy: I do not want to repeat what Ms. Crossman has said. Instead, I wish to focus in more detail on the universal child care benefit, which is the major part of the government's new child care plan. The acronym is UCCB, which is quite a mouthful, so I will just call it the child care program.
I want to make two major points this morning. One is that the child care benefit is a stealth program; it will not deliver on its promise. It will not even live up to its name. Second, it is a deeply unfair program — unfair both in terms of how it distributes its benefits according to family income and in how it discriminates against certain kinds of families over other types of families. I will take you through that process.
As you know, the child care benefit will pay $100 per month for each child five and under to all families, regardless of their family income. That benefit is paid on a monthly basis, like the current Canada Child Tax Benefit, so that will amount to $1,200 a year. The benefit will be taxable in the hands of the lower-income parent in the case of couples, or the single parent in the case of one parent families. It is being financed, in part, through the abolition of one of the benefits that is part of the Canada Child Tax Benefit, which is the young child supplement. That is a very small program of which very few people were aware until the government decided to axe it. This year, it will pay $249 per year — this is on top of the regular Canada Child Tax Benefit — and it goes to families with children six and under. That supplement will be eliminated to help pay for the new universal child care benefit.
Because the child care benefit is taxable — as are the major programs such as Employment Insurance, Canada Pension Plan and Old Age Security — on the face of it, one would think that would make the distribution of the benefit fair. In other words, as your marginal tax rate goes up, you pay a larger chunk and therefore your net benefit is lower as incomes increase. In fact, that is not what will happen.
This is fairly complicated, and I cannot properly explain it to you while speaking to you. However, it is in the presentation. Basically, if we took three families, all with a family taxable income of $50,000, the one-earner couple would be paying a very small amount of tax because the lower income spouse would not have any income. All that would happen is that the $1,200 payment would slightly reduce the married credit that is claimable by the earning spouse. For the two-earner couple, let us say they split the income $30,000 and $20,000. The lower income spouse, who has a taxable income of $20,000, would pay tax on the $1,200 amount. A single parent earning $50,000, however, would pay tax on the universal child benefit on the basis of the full $50,000. What that means is that the one-earner couple would actually end up with the largest after tax benefit, the two-earner couple would be next, and the single parent would end up with the lowest after tax benefit. That is part of it.
The second problem is the elimination of the young child supplement. Currently, it is mainly low and modest income families who benefit from the young child supplement. If you claim the child care expense deduction, which is typically the case with higher income families, you are not eligible for the young child supplement. When we factor in the loss not only of the taxability mechanism but also of the young child supplement, that means that the low and modest income families will be hit twice: First, most of them will pay some income tax — federal-provincial-territorial — on the $1,200. Second, they will lose the young child supplement. Higher income families will not lose the young child supplement because currently they do not receive it. However, they do receive the child care expense deduction, which is actually worth a lot more to them.
If you look at figure three, which I have distributed, it is a graph. These are examples of four different kinds of families to show you what the distribution of the net benefit from the new program will be. On the left are welfare families. The top part of the bar, which is blank, is the loss of the young child supplement. They will receive $1,200 but they will also lose $249, which leaves them with a net benefit of $951. That is the shaded part of the bar.
The next families I am looking at are single parents earning $20,000, which would be a typical single parent family. They will lose the $249 for the young child supplement. They will also pay $183 in federal and Ontario income taxes. I am using the example of Ontario here, but it will be similar in other jurisdictions. Their net benefit, then, is $768.
The third bar is a two-earner couple at $40,000. They will lose the young child supplement and will also pay $310 in income tax. They will end up with $641. The one-earner couple at $250,000 will pay $229 more in taxes. They do not lose the young child supplement and they end up with $971.
The families who get the largest after-tax benefit are one-earner couples earning $250,000. They will get more of the benefit than a welfare family. The working poor family, the single parent at $20,000, will get less than a welfare family, which means that the welfare wall that we have been trying to lower with the Canada Child Tax Benefit will rise up again. It will be a disincentive for people in the workforce vis-à-vis people on welfare.
The families in these examples who end up with the very lowest after tax benefit are two-earner couples at $40,000. The average income for a two-earner couple is about $90,000 now, so this is a very modest income family.
You can see what is happening here. The distribution of net benefits according to family income makes no sense; it does not go by your income level. In most cases, one-earner couples will be advantaged over single parents or two- earner couples.
What can be done about this? Does it have to be this way? It does not, and I will end on this note. The universal child care benefit is a tragic mistake — I will be very blunt. It is one of the worst, most retrograde steps in Canadian social policy that I have seen in my career, and I have been coming up here for 20 years now, speaking to senators and MPs.
It did not have to be this way. If the government had taken the $1,200, added it to the base Canada Child Tax Benefit — which is a very efficient, well-known program that is supported by all levels of government and by all parties — almost all families, except for very high income ones, would have received $1,200 and kept it. It is a non-taxable benefit. They would not have lost the young child supplement, they would not have had to pay income tax on the benefit amount, and they all would have received a boost of $1,200. This would have helped low-income families in particular. It would have moved the total benefit from $1,200 and the existing Canada Child Tax Benefit to about $4,600 maximum, which is close to the target of $5,000. It would have substantially improved child benefits for modest and middle income families as well. That, senators, is the way in which the government should have handled a child care benefit. However, it will not be doing it that way and, as a result, we are facing one of the worst social programs that I have seen in my career.
The Chairman: Thank you, Mr. Battle. Ms. Wilson, please proceed.
Leslie Wilson, Vice-President, Wee Watch: Good morning, Mr. Chairman and honourable senators. My name is Leslie Wilson and I am with a company called Wee Watch, enriched home child care. We are licensed private home child care agencies in Ontario and in B.C. We have been around for almost 20 years and on a daily basis we would have over 3,000 children in our care in about 1,200 homes.
At this time, we are pleased with the initiatives set forth by the Harper government. We believe that the best place for a child to be raised is in their own home by their own parents. This government has recognized that and is prepared to reward parents who are able to stay at home. It is obviously not practical for all families to have a stay-at-home parent for many reasons. We believe that our system best replicates a child being at home. The $1,200 allowance proposed by the government will help to close the gap between unregulated, unlicensed care and a licensed setting. Parents might now be able to afford this kind of spot versus a private individual, especially if there are tax incentives offered to a parent for this use. It will also guide parents to make a choice that will benefit their child. Under the old proposed systems, spots would have been created, but could parents have afforded them or had access to them? There is a great need for licensed, affordable spots for children under the age of two years.
Home child care can help to fill this void. There needs to be some stipulation put on this money. First and foremost, we should ensure that it is being used for child care and that it does not become a payment like the former mother's allowance. It has been determined that Canada's child care system is in need of support. We believe that there should be incentives when the money is directed towards licensed care, whether in a home situation such as ours or in a licensed centre.
The ultimate goal is the well-being of our children by ensuring that they receive the proper programming and stimulation required during their early learning years. Wee Watch has developed the Wee Learn System, which is programming designed for children to work at their own pace from 12 months of age to school age.
The other consideration that needs to be looked at is the individual receiving subsidized care from a provincial program. Should they receive this money when already receiving licensed care for less than $100 per month? Could this money be redirected to bring in more children from the waiting-lists in the provinces? We would like to comment on the $250 million allocated for new daycare spots. Our information tells us that to create a spot in a daycare centre costs approximately $5,000. In a licensed home setting there is little infrastructure required and the cost is well under $1,000 to create a spot. Consideration needs to be given to all scenarios.
Traditionally, the large city centres ignore licensed home care in any of their expansion plans. By far, ours is the more efficient model and allows parents access to far more licensed spaces at an affordable cost. In addition, licensing regulations favour the individual doing daycare in an unlicensed setting over someone working for an agency. The licensing model needs to be reviewed to meet today's standards.
The needs of care have expanded over the years with today's parents possibly job-sharing or working different shifts. Home care offers part-time and full-time care and is able to accommodate different shifts. It is encouraging to know that children who require overnight care can be accommodated in a supervised, licensed home environment. It is our hope that through this budget process we will be able to close the gap and help parents afford and understand the value of quality licensed care for their children.
The Chairman: Thank you, Ms. Wilson. Ms. Landolt, please proceed.
Gwendolyn Landolt, National Vice-President, REAL Women of Canada: Honourable senators, I am pleased to be here because this is an issue that our organization, which began in 1983, has always taken a major interest in. It is our position that government policy must remain neutral on the issue of career choice for women. Public policy must treat women at home and women in the workplace equally. Therefore, economic policies must be balanced and equitable, and not discriminate against personal choices made by families, such as with regard to child care and, in particular, the decision to have one parent at home full-time to care for the family.
Our view is, as set out in Bill C-13, that paying child funds directly to parents to allow them the choice of child care according to the child's needs and family values is the best option available. Equal child tax credits should be paid to parents regardless of which type of care they choose, whether home care or substitute care.
It is significant that policies that give advantage to children cared for in government-run daycare facilities do discriminate against parents making other choices in child care. In a study released in February 2005, the Vanier Institute of the Family found that 90 per cent of Canadians believe in and prefer that in two-parent families one parent should ideally stay at home to raise the children. Institutional daycare ranked a distant fifth when Canadians were asked who they would prefer to look after their preschool children. Having a parent provide the care came first, a grandparent second, another relative third, home daycare fourth and institutional daycare fifth.
Bill C-13 reflects these Canadian values. Even in Quebec, which has a government and a unionized system of child care, most people still prefer to have their children cared for by a relative. It is significant that parents have shown their interest in child care because a growing number of parents are opting for care by a family member. Between 1995 and 2001, the proportion of children cared for by a relative rose from 22 per cent to 32 per cent, which is a 10 per cent increase. The daycare centre enrolment also rose, but far less dramatically, from 20 per cent to 25 per cent.
Statistics Canada reported in February 2005 that 53 per cent of children under age 5 were in some form of non- parental care. This figure can be very misleading because only 13.1 per cent of children were actually in daycare settings, compared to 47 per cent of young children who stay at home with their parents while one or both of them work or study. The remaining children, approximately 40 per cent, are looked after by relatives, friends or through other private arrangements.
Bill C-13 treats all choices equally and does not financially coerce parents to make one choice over another by favouring one group of Canadian children. It is significant that no one ever talks about a crucial point: What is the cost of child care if we implement a national daycare program as was put forward by the previous government? Let us take a look at that and see how serious this matter is.
In 1986, the report of the Task Force on Child Care estimated the cost of a national daycare program at $11.32 billion annually. In 1999, a leaked federal discussion paper from the Department of Health concluded that such a program would cost, at that time, $12 billion to $15 billion annually. A national child care program would be an ever- increasing drain on future federal budgets, much like our medicare program. Universal child care lobbyists point to medicare and the universal system of education as models for their so-called ``early education'' child care programs.
A decision about child care is a decision for the parents, and the parents only. It is not a decision for the government to make. Parents should decide whether the child should be cared for at home by a parent or by another family member, in private daycare, in a community or religious or ethnic-based care centre, or in a government-operated daycare. It is up to the parents to make that selection.
A national daycare plan should also do much more than fund commercial daycare spaces. It must recognize the needs of children and the parental care of children. Parental care of young children is the least expensive child care plan in existence. A child care program as set out in Bill C-13 does give this needed recognition to parents. It is not discriminatory, but totally equitable. Other changes have to take place. Certainly, it is a wonderful start that money will be going to the parents, and the parents will be making the decisions on how they choose to have their child raised. That is absolutely crucial. It certainly is the Canadian way of doing things. Let the parents be in charge of the children, not the state.
The Chairman: Thank you very much. With your permission, we will now have questions from senators. I would propose starting with the sponsor of this bill in the Senate, Senator Angus.
Senator Angus: First, I wish to thank the panel for coming here this morning.
This is a debate which is clearly a complex one. It has been going on for some time. I learned a lot from reading your materials. Although your time was constrained, I thought each of you managed to encapsulate your positions very well.
If it is possible to simplify it, this debate is about the different ways and means of approaching and providing child care in Canada. Like the hockey game last night, it came down to a two-all draw here. I do not know whether it would be unfair to say this, but I will suggest it anyway: Nobody necessarily has it absolutely right. It is a matter of public policy and a matter of how you see things. I thought Ms. Landolt was very clear in the way she described it from her point of view; similarly, the position put forward by Mr. Battle and Ms. Wilson was very persuasive.
My question to the first two speakers is this: Were you surprised when this approach was reflected in the budget?
Ms. Crossman: I guess it was part of Mr. Harper's campaign. In that sense, we were not surprised. However, we always expected to be consulted about the child care program, being the largest child care organization in Canada. In that sense, we were surprised that it happened so quickly, and without consultation. We are optimistic that there is something on which we can work with the government, particularly around the other part of the legislation that is not in this year's budget. We want to come to some kind of compromise so that there are some guarantees that the spaces that are funded are quality placements. In answer to your question, we were not surprised.
Senator Angus: You were not?
Ms. Crossman: We were not surprised.
Senator Angus: I want to thank you for that candid answer, because the debate started to unfold during the election campaign. My recollection at the time was that Mr. Harper and his team were saying that they had done both focus groups and surveys. In their view, rightly or wrongly, this was what the majority of Canadians would favour — at least it was one of a variety of solutions. Therefore, as they said they would, they put it in the budget, for better or worse. This bill we are examining today is the implementation of that study. I do not really feel that it is fair to come and ask them to change it. They were elected on that platform.
Your offer to work closely with the government is noted, and they are anxious. This is not something that needs to rage and become an open, festering debate in the country. I think you will find that officials of this government are very open to having an ongoing dialogue. There will be other occasions at the polls to reflect your views if you are continuing to be in discord with them.
There are only limited resources to go around. Some governments might want to put more into infrastructure; others might want to put it into research and development. The bottom line, however, is that these are matters of public policy. Sometimes you get it right; sometimes you get it wrong.
Ms. Crossman: Perhaps I could add my comment about the comment that Canadians voted for this plan, this minority government. The other three parties that campaigned all had extensive child care programs as part of their platforms. I am not sure what polling and focus groups were done, but they certainly did not include our organization, or any of the organizations with which we are in touch, or the parents at child care centres that are affiliated with our organization. I just wish to put that out in response.
Senator Angus: I think your views are very well known, and have been very well expressed. In my own experience, I live in Montreal. I have folks around me in my workplace who have children who must be cared for. They are not necessarily in discord with you on this issue, or in discord with the Charest government. There is one lady sitting in the room now who would also sympathize with your position. At the same time, one recognizes that choices must be made. That is really what life is about. Throughout, Bill C-13 — all 186 pages of it and all 13 chapters — is about choices in different areas.
The minister came here last night. He couldn't have been more open. He said that Canadians are overtaxed and underhelped. We are doing our best. This is our first cut. I want you to appreciate that. We very much respect your views, and we want to hear them and get it right for the long haul. Thank you very much for coming here.
The Chairman: Senator Angus, we are running down. Can I put you down for a second round?
Senator Angus: Yes.
The Chairman: Next is Senator Eggleton, who was a critic on this particular matter in the Senate.
Senator Eggleton: What I am about to talk about is hot off the press, and Ms. Landolt might be interested in it. According to a report this morning, an Environics poll says that most people want the Liberal and plan, not the Conservative plan. Approximately 50 per cent said that they want a national early learning system, versus the 35 per cent who said that they would go with a family allowance kind of system.
I would like to ask the two of you who support this Conservative plank about the cost of dealing with daycare. The information that I have about the cost is broken down by different age groups. The plan set out in this legislation only goes to age six. Across every province, right across this country, we are looking at hundreds of dollars more per month than this plan could possibly provide. Of course, this $100 a month is subject to taxes. As Mr. Battle pointed out in his figure 3, it is disproportionate in terms of who it helps. It does not help the low, modest income people nearly as much as the high income people.
How do you reconcile the difference between this plan and the one it is replacing, a plan that the provincial governments all supported, governments of all political stripes. How do you end up with a plan that does not even come close to meeting the cost?
Ms. Landolt: First, Mr. Eggleton, to suggest that the provinces all support the plan is, perhaps, not exactly what happened. Every province seemed to have a different agenda. There was an agreement that the province would take money for child care, but we did not know how they would use it or to what purpose they would put it. It was never very clear. What province, in your lifetime, would ever refuse money handed to them on a silver platter? That is exactly what happened. They all signed on, but not necessarily to what the Liberal government had in mind, which was a national daycare plan. Alberta said no; the money would be going to the mothers at home. New Brunswick said the same thing. Some of the provinces wanted to redirect that money to other issues. It was not quite what a national daycare plan ought to be.
You say it is only $100. That could mean a great deal to a family with children, to have that money coming in. It recognizes the integrity of the parents and their decision.
Nobody in the world knows those children better than the parents. Nobody in the world cares more for the children than the parents. The Conservative plan is the first to say, yes, that parents have dignity and rights here. They are saying: ``We will do what we can to support them so that parents are making the choice, whatever that choice is.'' The family may choose to put it into a government-operated daycare. That is fine. Other parents may want it to give to the lady across the street for daycar, or it could go to the grandmother. It could be anyone. It could also be a parent staying at home. It is the dignity and respect being shown to the parents, and also the financial help, that really matters. That is why we support this program.
Senator Eggleton: It is clear that Canadians are saying, in this poll published this morning, that they want the spaces. Lots of parents are waiting in line, trying to get spaces. It is not easy to get spaces. Parents are saying that they want quality care. They think of it not as daycare but as early learning, and they think the best way to get that would have been through the plan that was put in place, which, by the way, had basic standards. When the plan was negotiated, the federal government did not say: ``Spend it any way you want.'' There were basic criteria put before the provinces. Even Ralph Klein signed on to it, and he was very unhappy when he got notice from the new federal government that they were cancelling that plan.
Ms. Landolt: Senator Eggleton, there were two things that you said. First of all, with regard to parents waiting in line, I know that one of the previous speakers said that there are 7,000 on a waiting list. Again, we need to look at that situation. People are putting their children on all kinds of waiting lists. They pile up, but they never take the names off. It is wrong to think that those waiting lists represent a demand for child care. That is not the case at all.
When you look at the figures, you must consider what it is that parents want. We know about the Vanier Institute. You said you have a Liberal poll. There are polls and then there are polls.
Senator Eggleton: It is not a Liberal poll.
Ms. Landolt: We know that the Conservative platform on child care was extraordinarily well received. You cannot deny that.
Senator Eggleton: More than 60 per cent of Canadians voted against it.
Ms. Landolt: I do not believe that you can suggest that that is what happened. They wanted the Conservative plan, which shows respect for parents. I think that is what it is. Parents have shown that fifth in line of their choices is a government-operated daycare system. Parents want to have the choices. Nobody is saying that they must go one way or the other. With the national Liberal plan, there was only one choice for parents. That is an insult to the integrity of the parents.
Senator Eggleton: Let me ask Mr. Battle about figure 3. You clearly outlined here how you see the impact in terms of different income levels and different scenarios. It is an amazing chart, this figure 3. You are suggesting that, in fact, if we must have the $1,200 a year, let us put it into the child tax benefit?
Mr. Battle: Yes. As Senator Angus said, this is a complicated issue. No one is pretending that it is not. The universal child care benefit itself, just to reinforce the notion, is not a child care program at all, yet the federal government is putting most of its money into this program. We do not yet know what it will do in terms of creating spaces. There is some increase in supply, but most of the money is going to this program, which has nothing to do with child care; it is a child benefit. Like the existing Canada Child Tax Benefit, a family can spend that money however they wish: on their children, or not on their children; on child care of different kinds, or not on child care, or whatever.
The issue is: What do we do? Obviously, this is one of the five priorities of the government. This is the way that the government has insisted on proceeding. Our approach, senator, is that this is a child benefit. Let us look at it as a child benefit program. Let us look at it terms of the progress we have made over the years in coming up with a better system.
The old family allowance had some of the same imperfections as does this program. Over the years, both the Conservative and Liberal Parties worked to create an evolution of child benefits that finally got us to the point of the current Canada Child Tax Benefit, which is a geared-to-income program. It treats every family type exactly the same. If you have the same income, you get the same amount of benefit.
You can see that the universal child care benefit is a step backwards. It is retrograde because it takes us back to the conflict between an income tax system that is based on individual income, and social programs that are based on family income.
Therefore, our approach was: The government will go forward with this plan anyway. We are great advocates of improving child benefits. Let us deliver it through the Canada Child Tax Benefit.
There is an irony here. Just forget about the policy side of it for a moment and look at the politics side of it. The federal government could have had a much bigger ``win-win'' situation if they had put this money on the Canada Child Tax Benefit. They could have said: a) we are making a huge step forward in the war against child poverty, because the total benefit from the $1,200, plus the existing Canada Child Tax Benefit, would have been about $4,600 maximum, which is very close to the $5,000 level that most experts agree is the target for an adequate child benefit system. It would have also improved benefits for non-poor families who have seen no increase in their child tax benefit for many years. That is a real problem. We do not want a child benefit system where we keep giving increases to low-income families and never help higher-income families. With the $1,200, we could have added that in. If we had added the $1,200 to the base child tax benefit, the level at which families would no longer be eligible for benefits would have been about $160,000. In other words, ninety-nine per cent of families would have seen an improvement in their child benefits. There could have been an advance both in terms of fighting child poverty and in terms of improving income security for non-poor families.
Ironically, the new program will still be administered through the Canada Child Tax Benefit anyway. Families could have received a cheque which said, ``Canada Child Tax Benefit, X amount; Universal Child Care Benefit, Y amount.'' In other words, families would have seen the benefits on their cheque; all families would have seen the $1,200. As it is now, as we have said, not a single family will end up with $1,200 a year.
The Chairman: I will put Senator Eggleton on the list for the second round of questions.
Senator Eggleton: I was about to suggest that we consider an amendment to this bill to that effect.
The Chairman: We will deal with the amendments when we do the clause by clause consideration, Senator Eggleton.
Senator Eggleton: They keep hitting people of low and modest income, whether it is with a tax increase or —
The Chairman: Order, please. Could we proceed?
Senator Stratton: Thank you, Mr. chairman. I would point out that it is 12 minutes to 10:00, and we do want to do the clause by clause consideration.
The Chairman: We have another panel at 11:00.
Senator Stratton: Some people in this room have other meetings that start at 11:30, so I would appreciate our holding to that line.
The Chairman: Thank you for that.
Senator Stratton: I am against the concept of one size fits all. I think there must be choices. There should be options for families, in my opinion, and we should not force everyone into the one-size-fits-all situation. This is a fundamental principle, and maybe there is a philosophical difference between the two sides that is at the root of all this dispute.
If we consider the one-size-fits-all concept, it is fine if families are in an urban centre or if they do not do shift work. However, if we consider the rural and remote communities, families in those communities do not necessarily have access to child care centres. Families who work shifts do not necessarily have access to child care centres. I think this is an option that allows families to go elsewhere to obtain child care.
I address my question to Ken Battle or Lana Crossman. How do you address the issue of families in remote and rural places and shift workers, who do not have access to child care? Daycare is a nine-to-five business. These issues need to be addressed.
Ms. Crossman: Sometimes there is a misunderstanding about child care; that what it represents is a centre in an urban setting. The child care services that are offered across the country are very different. It is not a one-size-fits-all model. We have a large number of family child care providers in agencies such as Wee Watch, for example, which Ms. Wilson can speak to. There are also preschool programs.
Even in rural settings — and on our board we have people who represents rural, remote and northern regions — they have been doing innovative work in their communities to set up child care based on the infrastructure in their community. It is based around a school, a community centre or a home. Those programs would have been able to access funding under the national program that was offered by the earlier government.
Often the terms ``institutional'' or ``state run'' child care are bandied around. That does not reflect the reality of what is going on in our communities, where the communities are involved in the centre and parents sit on the boards. These facilities are not run by the government. The government funds them but the parents are deeply involved in what happens with their child care. When you step into those centres, there could be a child care provider helping a child take a nap or fix a sore knee. It is not institutional at all. Quality child care is anything but institutional.
Senator Stratton: The question is how to address that issue. It does not seem to be necessarily across the board.
I respect you. That was a good answer. I am delighted to hear that is happening in rural and remote areas. The problem I have is that it may just be hitting the edges. I do not think that when the government of the day put forward their plan that they really thought about the folks who do not have access and choices. I think the fundamental issue here is choice.
Senator Murray: You should read the agreement in principle that was signed by the provinces. It makes specific mention to all of that.
Senator Stratton: I realize that. I am talking about the fundamental principle of choice. That choice should exist. Parents should have a choice.
Senator Rompkey: First, I want to comment on the rural-urban divide. I do not know how healthy the rural area is in other parts of Canada, but in my area it is depleting rapidly. We had 100 people leave Harbour Breton on the south coast of Newfoundland over a period of months. They moved to Fort McMurray. I suspect that when those women arrive there they will want daycare. They are going there to find work. To suggest that the rural area is healthy and fine, and that all it needs is dollars in the pockets of the mothers who stay at home, I think, is to deny the reality, certainly, in my area.
I want to ask Mr. Battle two things: First, what I am hearing is not necessarily a question of two programs or policies. What I am hearing about are two visions of Canada. You are suggesting that there are all sorts of choices. You can scrap daycare and go back to a mythological Canada that existed decades ago, where women stayed at home and raised the children.
My daughter has two children, aged four and two, and she is at home, but she certainly uses daycare. Why does she use daycare? Because she knows that social education is important. Children cannot get social education at home. How can you live with your peers if you are living with adults all the time?
The second point I want to make is with respect to the question of the cost of daycare. There is an old saying: If you think education is expensive, try ignorance. We have to make that investment, not just in post-secondary or secondary education but in early childhood education as well. If we do not do that, we will not be competing in the long run with countries that are making that investment.
Senator Nancy Ruth: There is something that each one of you said that I agree with. I am not particularly interested in this bill per se, but I am interested in choices and where you would obtain the money.
I am more interested in early childhood learning than I am in daycare. I do believe that if we do not learn early in life, we will pay for it later in life. Where are you planning on getting the money?
I also believe that parents should have the right to choose. I also believe that daycare workers need to be licensed, whether in the home or wherever. Your suggestion, Mr. Battle, is fine.
What will you do, cut the entire Department of National Defence budget to pay for early childhood learning? Where will you find this money?
[Translation]
Senator Fox: The intentions are good but, as evidenced in Ms. Crossman and Mr. Battle's document, there are serious deficiencies, and they bring to my mind the expression ``fundamentally flawed.'' There are some misconceptions around the table.
Let's take for example the agreements with the provinces: the one with Quebec was for $ 200 million per year, an amount which this government will set aside as of next year. These agreements are not one size-fits-all but rather made- to-measure. Provinces have all kinds of possibilities to develop their own program in these agreements. To say that it is one size-fits-all it is to deny the agreements signed with the provinces. Besides, they respected provincial jurisdiction. It is specifically written in the preamble of the agreement with Quebec. It was an incentive for the provinces to go that way. The present government invests more money in building prison cells than child care spaces, it is a nonsense.
We are talking about medium term and not short term solutions. It is a matter of trust for the government. If our committee was unfortunate enough to amend just one comma in this bill, the government would accuse us of wanting to prevent Canadians from getting their $100 a month as of July. It may be inclined to call an election laying the blame on the Senate. We must be looking to the middle term and not to the short term when considering political reality. How do you intend to explain your position with the government? The intention is commendable. If we were to create a focus group asking Canadian whether they want more money in their pockets — and I am not an expert in that field — they would probably say yes, that they would like to get that extra $100. That however does not mean that we are setting up a good child care system in Canada.
What can we do to ensure that the extremely Cartesian positions developed in your documents could influence the government to think beyond ideology and find a solution that would really meet the needs of the Canadian children?
[English]
The Chairman: Could you comment on any of the points raised? We are running out of time but we would appreciate brief comments.
Mr. Battle: There is an argument about giving people choice. I will use my example of a single parent earning $20,000. We will give them $1,200 a year. We will cut $249 from their Canada Child Tax Benefit, and they will pay $183 in taxes. They will then end up with $768. Is that the choice you are giving to that person, in terms of child care?
Ms. Wilson: I think the budget is allowing parents to pursue an avenue of choice that they may not have previously had. Where money is an issue for some parents in affording licensed care, this budget is now giving them a stepping stone towards the good choice, the right choice. There is no lack of options for parents, whether it is daycare centres, home daycare or private individuals. They just need to be educated to source out these avenues and understand the pros and cons of each one of them.
Ms. Landolt: In regard to expensive child care, some people have talked about standards, but no one has looked at what those standards are. For example, Quebec, which has its universal daycare at $7 a day, has set a standard of five children under the age of 18 months cared for by one worker. No woman in the world could do a good job under those circumstances. She cannot educate them at all. All she can do is try to cope, but any woman who has had five 18- month-old children to care for at one time cannot cope with them. The standards are low because of the expense of child care.
I do want to make the point that people say children must be educated and we must start early. What an insult to the parents. They are perfectly capable of educating their children at home. Because they are parents does not mean that they are ignorant and stupid. The children need the parents at home and they can be as well-educated in the home as they can at daycare, especially in such circumstances where there are five children to one daycare worker. To say that children need the education that can be provided by daycare only is absurd and totally unrealistic. That is the only point I wanted to make.
Ms. Crossman: I will address the point of Senator Nancy Ruth about the cost, and how we pay for this. We obviously have the money. It has been promised here in this bill. There is money. As well, in the previous government there was a financial commitment to at least lay the groundwork for creating a system. There is the money and it is an investment that pays. Figures show that for every dollar invested in early learning, it pays in dividends of $2. We cannot afford not to do it.
To address the comments of Senator Fox., it is a challenge because there does seem to be a clash of ideals, but I am optimistic that we can work through that because we do have to deal with the realities that families are facing today, so we will be working together with you to find some solutions and rise to the challenge.
The Chairman: Thank you to each of you: Ms Crossman, Mr. Battle, Ms. Wilson and Ms. Landolt. On behalf of the Senate of Canada, we appreciate very much your taking the time to be here and help us with this issue.
Honourable senators, we will get under way with the second panel this morning. We are dealing with Bill C-13, budget implementation 2006. Our next witnesses are here to address one of the questions arising under that bill relating to the policy issues between the consumption and income taxes.
I am pleased to welcome, on behalf of the Senate of Canada, the witnesses: Mr. Dale Orr, Managing Director of the Canadian Macroeconomic Services, of Global Insight Canada; Mr. John Williamson, Federal Director of the Canadian Taxpayers Federation; and Mr. Niels Veldhuis, Associate Director of Fiscal Studies at the Fraser Institute.
Gentlemen, we would ask you to limit your remarks to approximately five minutes, after which we will open the session up for questioning. Senators tend to have a lot of questions, and we tend to zero in on the issues that are important to us with respect to this bill.
Dale Orr, Managing Director, Canadian Macroeconomic Services, Global Insight Canada: I have a couple of comments first on some principles of tax reduction. The impact of a tax reduction in the economy can be evaluated from several perspectives. Among the most important are the impact on productivity and the impact on income distribution.
I will address consumption taxes and the impact of the GST reduction on productivity. Here I will focus on the Conservative government's priority of reducing the GST. From the perspective of providing incentives to increase productivity in the Canadian economy, there could hardly have been a worse choice than a GST reduction. Worse still, even a 1 per cent point reduction of the GST, at a fiscal cost of a whopping $5 billion per year, gives up a lot of government revenue. Alternative tax reductions within this fiscal cost could have provided significantly more incentives to join the labour force, to work and otherwise increase productivity and enhance Canada's economic performance.
A GST reduction does provide some indirect incentive to join the labour force and to work, since it does indirectly increase the rewards for work by increasing the consumers' purchasing power. It must also be emphasized that, in a $1.5-trillion economy, the allocation of $5 billion per year to a GST reduction, as opposed to an income tax reduction, will not make a significant difference to Canada's productivity performance, for which we should give thanks. However, the government here has staked out a path of GST reductions, specifically, as opposed to the reduction in the lowest marginal tax rate, which could be expected to have a more positive impact on productivity.
Looking at the GST reduction and its impact on income distribution, I have a couple of comments abbreviated from the text that I handed out, in the interests of time. It is true that there are individuals and families whose income is so low that they will benefit from the GST reduction, but they would not benefit from a more generous basic personal amount or a reduction in the lowest marginal personal income tax rate. However, for those families living on very modest incomes, for example less than $20,000 of family income a year, the benefits from a 1 per cent GST reduction are very small indeed; certainly less than about $10 a month. Most families with incomes in the $20,000 to $60,000 range would benefit more from reductions in the basic personal amount and the lowest marginal rate than from a reduction in the GST of equivalent fiscal cost. Most families with over about $80,000 in family income would benefit more from a 1 per cent reduction in the GST than equivalent reductions in the basic personal amount and lowest marginal rate.
Let me turn then to reductions in personal income tax. The movement of the basic personal amount up to the $9,039 level for 2006 and the reduction in the lowest marginal rate from 16 to 15, implemented by the Liberal government in November 2005, were, in my view, a combination of tax reductions with very commendable benefits both for productivity as well as income distribution. Fortunately, Budget 2006 moved about 60 per cent of the way to maintaining these reductions. I am optimistic that, as soon as fiscal conditions permit, the Conservative government will move the basic personal amount up and the lowest marginal rate back down.
Reducing the lowest marginal rate is one of the most effective tax reduction strategies for both helping low-income families and increasing their incentives to work. A reduction in the lowest marginal rate reduces the tax burden most significantly on the lowest income taxpayers. Basically, on the personal income tax side, the most effective tax reductions to increase the incentive to work are reductions in marginal rates. Economists emphasize that incentives are impacted by changes in rates at the margin. Reducing a marginal tax rate increases the incentive to join the labour force, the incentive to work, to work more overtime, to train or to take education for a higher paying job and to stay in Canada. For every hour or every day worked, a reduction in the marginal personal income tax rate increases the take- home pay from work.
I would now like to present a couple of conclusions and recommendations. When the government changes taxes, they should give a much higher priority to what the impact of this tax change will be on the incentive to join the labour force and the incentive to work in both the short and longer term. To have maximum impact on the incentive structure, we need to make clear, consistent and sometimes bold moves. For an example, an across-the-board reduction in each marginal personal income tax rate, if significant and maintained, could have a very beneficial impact on productivity and economic growth over the longer run. Tax changes which increase the incentive to save are amongst the most effective productivity enhancers on the personal side. To use up our valuable fiscal room by focusing on reductions in the GST and the scatter of targeted tax credits will do little to strengthen the Canadian economy. Fortunately, from the productivity perspective, Budget 2006 did provide the Canada Employment Credit and it did not completely roll back the reduction in the lowest marginal rate as originally planned.
It must also be emphasized that much can be done to enhance productivity on the program's spending side. Productivity enhancement and tax reduction are not a closed set. Obviously, some of the spending in Budget 2006 can be very effective in enhancing productivity.
On the tax reduction side, however, I am optimistic that this government will focus on tax reductions more conducive to productivity and income growth in the coming years.
The Chairman: Thank you, Mr. Orr. We received the two publications and they have been distributed to all senators. I appreciate your trying to follow the time limit.
John Williamson, Federal Director, Canadian Taxpayers Federation: Honourable senators, thank you for having me here today. The Canadian Taxpayers Federation is a non-profit, non-partisan advocacy organization dedicated to lower taxes, less waste and more government accountability.
The question posed today is an important notion: that is, consumption tax versus income tax. Most economists will agree that it is better to cut income taxes versus consumption taxes. There is one caveat, however, which was missed in the debate during the election campaign when the Conservatives first announced their GST cut. The caveat is that it is only true if you are cutting the top marginal rates of the income tax.
In my opinion, there was virtually no difference on the productivity impact between the economic incentives from the Liberal reductions on the income tax, which were to reduce the rate from 16 per cent to 15 per cent on income to about $36,000, and the increase in the basic personal exemption by, depending on your time frame, $700. Those were good measures to return surplus dollars to taxpayers. However, they do not provide that boon in terms of economic growth that economists are so quick to talk about when they talk about cutting marginal tax rates. When this debate erupted that is why our organization was quick to point out that the Conservative proposal to reduce the GST first by one point and then by another point was no more or no less productivity enhancing than the proposal on the table at the time to cut only the income tax rates at the low level of the economic ladder.
That is an important point to make because so often we get confused about the blanket notion that cutting income taxes is better than a consumption tax. In a perfect world we would want to cut those top marginal rates, but ours is not a perfect world. This is politics with which we are dealing, and you must take the proposals on offer as they come.
I suppose some said that we should wait for tax relief until we have that perfect plan. Frankly, if I were to wait for the perfect tax relief plan in this town, it would be a long time coming before tax relief is offered to Canadians. You might agree with me on that.
Prior to the 2006 budget we were quick to point out that individuals earning between $20,000 and $85,000 would be better off with the Liberal income tax measures on offer than they would be with the GST cut. In fact, even a dual- income family earning $100,000 would have been better off with the Liberal income tax measures than with the one point GST cut.
Budget 2006 went some distance in adopting more or less the Liberal measures that were announced in the 2005 economic update. They did that first by implementing an employment tax credit, which is much like the current basic personal exemption. The new rate on income to $36,000 is 15.5 per cent as opposed to 15 per cent. We call this a tax increase, of course. The government, however, calls it a tax cut. I would point out, however, that when you go from 15 to 15.5, that is up and not down. The debate rages on.
I will stop there. The point I want to make is that, in terms of the two tax cut proposals that were on the table, neither was better to improve Canada's productivity or its economic fundamentals. Both plans were a commendable way of returning surplus dollars to taxpayers. When this town is running surpluses in the range of $8 to $12 billion per year, returning those surplus dollars to taxpayers is a worthy goal in itself.
Niels Veldhuis, Associate Director, Fiscal Studies, Fraser Institute: I would like to thank the committee for having me here today. It is a great honour. Although I am a representative of the Fraser Institute, I remind committee members that the opinions I express today are my own. Most of my arguments are summed up in an article I have submitted to the committee called, ``Cut the Right Taxes''.
Before I start on tax cuts, we must keep in mind that last year the average Canadian family paid $36,650 in taxes. There is a clear need for tax relief. This committee wants to hear about which taxes should be reduced. How do we go about answering that question? I will argue that we need to focus on two tests of tax relief: The first is on economic efficiency; the second is on tax competitiveness.
I will start with efficiency. The first test should be whether or not the proposed tax cuts make the economy more efficient. What do we mean by that? I mean improving the economic incentives for savings, investments, work, entrepreneurships and all the things that improve our economy.
The incentive effects of different types of tax cuts are best summed up by a working paper that was submitted to the federal Department of Finance. I will go through three of these incentives.
The first one is taxes on investment. These are interest, dividends and capital gains taxes. The reductions in these types of taxes lead to increased savings because of increased returns. Increased savings lead to lower costs of capital for firms and thus increased investment.
The second incentive is taxes on capital. These are corporate income taxes and capital taxes. Reductions in these taxes also increase the after-tax rate of return, lowering the cost of capital for firms, which spurs investment.
The third incentive is consumption taxes. Reducing consumption taxes decreases the cost of consumption, thus encouraging more of it at the expense of savings. The importance of savings and investment is crucial to this debate because, as we know, savings leads to investment, which finances the purchase of machinery, equipment and all the things that make workers more productive, which in turn leads to increased wages.
Much economic research has been done since the 1970s in an effort to estimate the cost of different taxes. Two of the more cited have been done by economists at Harvard University and by the federal Department of Finance. All of the research I have seen on measuring the costs of different taxes indicates that business taxes, corporate income taxes, capital taxes and personal taxes on capital are the most damaging to an economy by a ratio of almost three to one. For instance, raising $1 in corporate income tax costs the economy $1.55. Raising $1 in sales tax costs the economy 17 cents. Clearly, to improve the economy we must focus on economic performance and incentives. By that measure, business tax relief and personal income tax relief should be the priorities.
The second test I use for tax relief is tax competitiveness. For this, we compare the tax system in Canada to that of other countries in order to determine how we are raising revenues as compared to other countries. Canada uses the most economically damaging types of taxes — income and profit taxes — to a much greater extent than most other OECD countries. In fact, Canada raises 46 per cent of its revenues through these damaging taxes. This compares to an average of 34 per cent among OECD countries. From a tax competitiveness perspective, therefore, we clearly must reduce the use of economically damaging income and profit taxes and increase the use of less damaging consumption taxes.
In conclusion, Canadians would benefit tremendously from tax relief. The economic research indicates that we should be focusing on reducing business taxes and taxes on personal capital and not on reducing consumption taxes.
The Chairman: Thank you, Mr. Veldhuis. The article from Fraser Forum prepared by you and Mr. Jason Clemens has been made available to all members of the committee. I appreciate your making that available to us.
Senator Angus: Gentlemen, thank you for your attendance today. Is it fair for me to assume that you are aware of what the Minister of Finance said before this committee yesterday?
Mr. Orr: No, I am afraid not.
Senator Angus: He gave us his view of the world and the budget. He indicated that he believes that Canadians are terribly overtaxed and that the plan of this government is to work towards reducing taxes.
As I asked the previous witnesses, were you surprised at any of the measures that were in the budget, having heard what was stated by Mr. Harper during the election campaign?
Mr. Orr: The surprise was with regard to the fact that the economy was a bit stronger between the time of the economic statement in November and the delivery of the budget in May. Four or five billion extra dollars of fiscal dividends came up, which was not available for the Conservatives to comment on in January when they put out their fiscal plan. They used about two-thirds of that $4 billion to $5 billion to do less rolling back of the Liberals' personal income tax cuts than what they had said they would do. I had hoped that they would use the money for that purpose, and they used about two-thirds of it for that. There were a few other things, but most of those things were in the Conservative fiscal plan of January.
Senator Angus: The hidden surpluses were discussed yesterday. Could you comment on that as a practice in terms of managing our financial affairs?
Mr. Veldhuis: I do not think we need to be as concerned about the level of surpluses as about what we do with those surpluses when they arise. We want to have reasonable budget estimates, and the use of private sector forecasts is certainly to be encouraged, but the more important question has to be what to do with those surpluses. The answer is that we need to look at the amount of taxes that Canadians pay. We pay almost 46 per cent of our income to all types of taxes. Clearly, those surpluses should be dedicated back to the Canadians who paid the taxes.
Senator Angus: I assume you also agree that they should be disclosed; that there should be an element of transparency?
Mr. Williamson: That is exactly right. Hidden surpluses mean that the debate on how that money should be used is not taking place, whether you want to spend the money or to cut taxes. When a surplus materializes at the end of the year, by law it is applied to the debt. The benefit of this is that, over time, you reduce your debt and debt interest payments. Today we are saving $3 billion to $4 billion a year through debt reduction. However, it is much better, from a public policy point of view, to have a sense of surpluses going into a fiscal year as opposed to finding out about them at the end of the year. I think this government is committed to correcting the fog around the surplus projections.
Senator Angus: The minister consulted the private sector panel of economists and also had his own experience as Finance Minister of Ontario. He agreed that the view of the experts was that you should not cut a consumption tax like the GST without also cutting income tax. There was a promise made in the election campaign to cut the GST by 1 per cent, effective July 1, and by another 1 per cent next year. He indicated that there were also income tax cuts, through either credits or other measures, totalling nearly $20 billion over a two-year period.
Would you not agree that there is some element of balance in terms of having tax cuts as well as personal income tax cuts?
Mr. Williamson: I am a little more critical of the Conservative plan. Yes, there was a commitment to fulfilling the campaign promises, and that is important. In this era where there is so much public cynicism toward politicians, following through on what you said on the campaign trail is very important. I give them marks for that.
I think the budget focused too much on the use of tax credits: that is, if you have kids in sports, you get a tax break; if you use public transit, you get a tax break, as well as a host of credits for fishermen, trades people and others. I believe it is far better to simply decrease marginal rates across the board to give relief to everyone. Those are the kinds of cuts you want to look at to fuel the economy and ensure that our productivity is stronger tomorrow.
However, your point is well taken. Following the tabling of the 2006 budget, no taxpayer in the country was worse off, and that is as a result of the machinations between the consumption tax cut, the employment credit and the new rate. Those lucky enough to qualify for the credits are better off still.
Our organization views the 2006 budget as a work in progress. The government only had three months to put it together. The real test will be the 2007 budget when they begin to look at broadly-based tax relief and their capital gains tax proposal, which is still being fleshed out, I think.
Senator Angus: They have stated that very clearly.
Mr. Williamson: Yes.
Senator Angus: There are so many domino effects when you tinker with the very complex tax structure in Canada. You need to think through the effects. The Senate Banking Committee has been asking for a reduction in the capital gains tax for many years on the basis of your second point, international competitiveness. We in Canada are at a terrible disadvantage vis-à-vis our neighbours to the south, and that leads to a brain drain. We have to get it right, and you will be happy to know that the minister made it clear yesterday that, in the view of his government, we are terribly overtaxed and they must address that.
Senator Eggleton: On the choice of income tax versus GST, obviously the government is fulfilling a promise that it made, but it made a bad choice. I think what we heard from the three panellists here verifies that. I was impressed, Mr. Orr, with your paper and your reality check. I read it thoroughly. You have all contributed to this discussion quite well. Given that we have already established that it was the wrong choice, I would like to go on to a couple of other factors here.
Concerning the prudence factor, The Globe and Mail, back on May 3, said that it was concerned about us getting perilously close to the deficit brink again. The response from the Finance Minister is, ``You have had those huge surpluses all along.'' I want to zero in on the prudence factor in a legitimate way. If something happens in the economy, whether it is SARS or Asian currency or whatever, we need the ability to stay out of a deficit situation. I do not think Canadians want to go back to where we were. I would like to hear from all of you on that prudence factor.
One other thing I would like to ask you about is innovation and research. David Crane in the Star earlier this month said that Canada is one of the few major countries without an innovation strategy for the future, and that this represents a huge gap in the Harper government's agenda for the future. In fact, the economic update under the previous government last fall did have $2 billion in investments that it was recommending for the Canada Foundation for Innovation and the Canadian Institute of Advanced Research. Those have disappeared from this budget. I think there is, as Mr. Crane indicates, a concern here about a very important part of the economic planning in terms of our competition and our productivity in the future.
I would like you to comment, both on the prudence factor and on this question of innovation and research.
Mr. Veldhuis: Speaking to innovation and investment, Canada does have a serious problem with investment. We lag most other developed countries in investment and innovation. Probably the biggest reason we do so is that we have very high tax rates on capital and very high tax rates on investment. In fact, Canada has the second highest marginal tax rate on capital investment, next only to China. We cannot expect investment and innovation if we do not give businesses and individuals the incentives to do so.
Mr. Orr: Let me comment on Budget 2006, or the Conservative's approach to prudence relative to the approach that we basically took from the mid-'90s with the Liberals. I would say the two approaches are similar. I would not spend more than five minutes worrying about the difference.
The former budgets had a contingency fund. The Conservatives say that they will allocate $3 billion to debt reduction within that fund. Those are equivalent approaches.
Before Budget 2006, the Liberals had economic prudence, which in the first year was $1 billion, and then it was $2 billion and then $3 billion. I would say fortunately this year, in this budget, there was not quite $1 billion in the first year and not quite $2 billion the next. We would want to look carefully at future budgets to ensure that they show a surplus, after laying aside the $3 billion in debt reduction, of at least $1 billion in the first year and $2 billion in the next. If they do that, that would be the equivalent amount of prudence to what we saw before, which I think is at least adequate.
There is an argument that now that we have our debt down, we can afford to be less prudent than we were before. I would say that this difference is a non-issue, relative to everything we need to deal with and where we are going on fiscal policy.
With respect to innovation strategy, yes, we could do better. However, I do not think that the approach is more government institutions. For heaven's sake, it is almost a contradiction in terms when we talk of creating an innovative economy and then saying ``Let's set up a government institution and give more money to this one and that one.'' I say cut corporate income tax. Cut taxes for depreciation rates. Cut taxes on capital. A lot of good work has been done on this aspect, including some by the C.D. Howe Institute. There were several good pages within Budget 2006 that showed that our marginal tax rate on investments was very high relative to other developed countries. We need to cut tax rates on investment. That is really important. I favour the approach of cutting those kind of taxes instead of creating more government institutes for innovation or giving more money to current government institutes for innovation.
Senator Murray: Mr. Orr, perhaps we should have you back when we discuss the federal accountability act, talking about the creation of new institutions. Surprisingly, for a Conservative government, the Harper government has proposed a bill that purports to enhance the accountability of government to Parliament by creating a pile of new agents of Parliament, or expanding the ones already there, or giving them more powers and more money, as Senator Cools reminds me.
On this question of surpluses, some of us denounced a previous government, I think with good reason, for a practice that grew up for a while of creating, either by legislation or through the Canada Corporations Act, new foundations towards the end of the fiscal year and then shovelling surplus monies into them, for legitimate policy purposes, no doubt, but foundations that had little or no accountability to Parliament and all the rest of it.
We were particularly outraged less than a year ago when, under Bill C-48, a pile of money was shovelled, with absolutely minimum description of what the money was to be used for — so many millions for Indian Affairs and so many millions for housing and all the rest of it. Mr. Flaherty acknowledged last night — very tersely, but acknowledged nevertheless — that he and his government now is shovelling money into that very vehicle, Bill C-48, that we denounced.
I have heard Mr. Orr on the question of prudence and surpluses and so on. I have always been dubious about locking a government in, as the previous government did, even to one third, one third and one third — you will remember that one third of the surplus was to go to tax reduction, one third to paying down the debt and one third to new programs. I do not believe in locking in the ministers.
I would like to know what you think, Mr. Veldhuis and Mr. Williamson, is appropriate under the present circumstances in terms of the choice between paying down the debt and lowering taxes and new programs.
Mr. Veldhuis: I think we must differentiate between surpluses that are built in and unexpected surpluses. When we talk about unexpected surpluses, the whole amount ought to be dedicated to debt relief. Doing so frees up resources in the next year that can be used to make Canada more competitive through tax relief or whatever the priorities of the current government are. Unexpected surpluses should be allocated to debt relief.
Structural surpluses, as both Mr. Williamson and I have mentioned previously, are a function of the way that governments structure their budgets. Those must be dealt with by having better forecasts, and relying on the private sector in terms of those forecasts.
Mr. Williamson: I agree with you, senator. Bill C-48 is, and continues to be, just a political beast, a product of a minority government. It will continue as long as there is a minority government. I think you are right that it is used to shovel money aside and to pay off special groups. Bill C-48 was three pages long in total, and that was translated.
Senator Murray: How much money, do you remember?
Mr. Williamson: It will come to me, but it was a great deal. It was the anticipated surplus above $3 billion. It was an open-ended cheque, potentially, as well.
I do not think, though, that the Financial Administration Act should be changed. I agree with Mr. Veldhuis that a surplus at the end of the year should be used to pay down the debt, no questions asked, for two reasons: first, it is a good policy; second, with the accounting principles we use, which is that you book the money in the year that you intend to spend it and then you spend it, when you begin to move from that principle, which Bill C-48 does, it is problematic and makes it much more difficult to track that money and to see how it is being spent in the fiscal year for which it was allocated. It makes the accounting much more troublesome and problematic to track.
One thing that our organization has suggested, in order to put debt relief more on the agenda, would be to implement an annual debt elimination schedule. This is something the Conservative Party and opposition supported, but they have not moved to do so now they are in government, and I do not think they will. This would, for example, dedicate a certain amount of revenues every year to debt elimination; it might be 1 per cent, it might be 5 per cent. It is what Alberta did, for example, on its quest to eliminate its debt. I think it was the Conference Board — and I could be wrong on that — or some other large organization or well-known think tank, which recently talked about eliminating Canada's debt and how it would be possible to do it over a generation.
Of course, do not forget that the largest single spending item out of the federal government today is interest on the debt. It is higher than healthcare, education, defence, Old Age Security or pension payments. With a demographic boom coming along, reducing interest payments is perhaps the smartest policy we could make today to clear up the revenues for tomorrow. It represents a huge amount of money. Even reducing the debt by $4 billion to $6 billion a year today would pay huge dividends down the road.
Senator Murray: It is a virtuous circle. I do want to take advantage of the presence of these people to ask a couple of questions which I will put to them about matters they did not address in their briefs but which are before us. I will ask the two questions:
First, whether you have a view with regard to Mr. Ken Battle's proposal that the $100 a month, the $1,200 child care benefit, ought to flow through the Child Tax Benefit? Would that would be a more progressive way to go about it?
Second, and this is an entirely different subject and has to do with the GST. Last night, when the minister was here, he brushed off a couple of questions that I tried to put to him. The first was about a possible harmonization of the GST with the provincial retail sales taxes, and whether that is a good direction to go, for any reason. The second was whether he would move to have the GST included in the price of goods and services. He said he was not interested in that.
Do any or all of you have a view on those matters?
Mr. Veldhuis: Let me address the proposal to include the GST and the price. This is a practice in which many European countries have engaged. It makes the tax system less transparent. The GST is one of the most hated taxes for a good reason. That is because Canadians see it every time they make a purchase. Including the tax in the price of the goods obviously makes it very much less transparent.
In terms of the Child Tax Benefit, and the universal child —
Senator Murray: Therefore, it should not be included?
Mr. Veldhuis: It should not be included in the price. It makes it less transparent if it is included; that is right.
In terms of the $1,200 — the universal child benefit — if you look at polls, most Canadians want one parent to stay at home with their child, to raise their child at least for the early years of their life. Unfortunately, we have a tax system that is biased towards one-income-earner families. I think before we start engaging in plans to promote the use of child care we ought to look at what Canadians want. I think when we do that, we will see that the polls show that Canadians want to stay home with their children. We ought to make it a possibility for Canadians.
Senator Murray: Should it be flowed through the Child Tax Benefit that now exists? That was the issue Mr. Battle addressed.
Mr. Veldhuis: It does not make sense to take money from average Canadians and give it back to average Canadians. I would prefer to reduce taxes and make the country more competitive. Canadians will have more money in their pockets.
Senator Murray: I am sorry.
Mr. Williamson: I can answer that head-on. I would say no, it should not be included in the Child Tax Benefit. The Child Tax Benefit is clawed back at a certain income level. This national daycare proposal, which will benefit all families with young children, is universal. It does not matter if you make $10,000 or $100,000. It flows to you, taxed in the hands of the spouse with the lower income, which actually reduces the discriminatory tax nature we have when it comes to favouring double income households. It is positive in that respect. It levels the playing field in terms of the one-income-earner family versus the two-income-earner family. That is possible. It is universal. If it were to be lumped in with the Child Tax Benefit, that would be clawed back as people move up the income ladder.
Regarding harmonization, it is a wise policy; it is smart policy. However, there are pitfalls, as you know. One reason is that there is a great deal of concern in Eastern Canada because of the tax on home heating fuel. Suddenly, when that tax came in, the provincial sales tax was suddenly applied to goods and services to which it had not previously been applied. It is difficult for families struggling to pay the bills to go from 7 per cent to 15 per cent on their home heating bill. That is a fair amount of money. When taxes are harmonized, the tax base expands. This tends to mean more tax revenue flowing into government. That has to be avoided in today's age with tax freedom day coming so late in the year. Happy tax freedom day, by the way. It was yesterday.
Mr. Orr: I will not touch the child tax issue, but on the GST, I think it would be beneficial from the point of view of economic efficiency and our competitiveness if we could get harmonization with the other provinces. Then all the taxes would have an input tax credit, a feature of the GST, unlike the sales taxes that now exist in those other provinces. Generally, then, I would say that it would be quite beneficial for that reason.
I have also mentioned that I hope that, if the government decides to go ahead with the next tranche of the GST from six to five, they try to get the benefit out of the move by presenting it to the provinces as fiscal room. Then the provinces do not come back to the federal government for any money unless and until they have taken up that fiscal room. That could have a beneficial effect along with other beneficial effects. There would be a better matching between responsibilities for raising taxes and delivering services on that issue.
I agree completely with what Mr. Veldhuis had to say. We should make sure that Canadians understand that public services have a price. I think he is right. That is why the GST is hated. The imposition of the GST was one of the few occasions when people understood that the things that governments provide come at a price. There are a lot of public opinion polls where Canadians are saying: ``Yes, I love the CBC; give me more CBC. I want more health care. I want more equalization.'' They do not understand that every Canadian must pay for these things.
Senator Murray: The GST is coming into its own. God spared me into my old age, to the point where I am now seeing Liberal senators who are supporting it.
Senator Mitchell: I would like to pursue the debt repayment issue again. I am quite concerned that there just seems to be a real absence of an intense focus on fiscal prudence in this budget. It is particularly evident with respect to the fundamental absence of any kind of intensity about paying off the debt.
I think there needs to be a schedule. I think $3 billion this year is inadequate. I would like your ideas on what would be a reasonable period of time over which we should project that this debt be retired.
I would also like to know what your feelings are about the trade-off between lowering taxes and paying off debt. There has to be some give and take there.
If you could comment on those points, I would appreciate it.
Mr. Veldhuis: Let me talk about scheduled debt relief. Unlike Mr. Williamson, I am not a supporter of scheduled debt relief. We need to understand that the burden of the debt is best reflected in debt as a percentage of GDP. As our economy grows, that burden becomes less and less, so long as we do not add to the debt. If you have scheduled debt relief, you are taking funds out of the economy through the use of damaging taxes. It is best not to take money out by the use of damaging taxes but, rather, to let the economy grow to reduce the burden of the debt.
I would say keep the dollars in the hands of Canadians who will better use them, rather than implementing these damaging taxes to schedule a debt relief.
Mr. Williamson: I think that is a fair criticism. However, I think we have to start with 1 per cent of revenues, and grow to 5 per cent of revenues dedicated to debt relief every single year. I am not talking about raising taxes to do that. I am talking about cutting other programs or services within government — corporate welfare, for example. Every year, the government spends $26 billion on grants to organizations, other governments and individuals. It is a huge amount of money. There is clearly room in that budget for savings.
To answer your question, how long would it take? I would say 25 to 35 years, based on today's projections. What they found in Alberta, which is an interesting case study, is that today they are fortunate to be debt-free. It did not happen just because of the resource revenue boom; it happened because they had a plan, and they managed to exceed it. Even if the resource boom had not happened, they still would have been on track to eliminate that debt. The important thing was that they had a plan and they stuck to it, year in and year out, and it got them where they wanted to go.
My only criticism with what Mr. Veldhuis has said is that every year the federal government is spending just under $35 billion on interest. We are saving $3 to $4 billion today because of the wise policies that the previous government implemented to cut about $62 billion in debt. Jim Flaherty's budget dedicated another $8 billion last year to debt relief and he has projected $3 billion this year. If the surplus grows, I think that number will grow as well.
It is important to have a plan rather than just do it as an afterthought. That was my only criticism about the previous government; it always happened at the end of the fiscal year, not up-front.
Senator Mitchell: I think there was a focus on the part of the previous government to pay off the debt. You really underline my point. Maybe it does not have to be an explicit schedule, Mr. Veldhuis, but I think if you do not focus on that as some kind of a policy objective, it will not happen. One of the problems with your perspective is that the dilemma becomes very clear during an interest rate increasing environment: What do we do? You are arguing that we should just leave the debt where it is, or pay it off if we happen to accumulate more surpluses by happenstance. However, if interest rates are increasing, then that is taking a huge bite out of government revenues as well. Surely you do not mean quite what you are saying; there has to be more focus.
Mr. Veldhuis: No. I absolutely mean what I say. There is an opportunity cost to everything we do. We have X amount of funds. You can put it towards debt relief or you can put it towards tax relief, which improves incentives, grows the economy and brings in more revenues for government —
Senator Mitchell: It does not work; you are sounding like a Republican. You run up debt. Just look at Reagan —
The Chairman: Let him answer.
Mr. Veldhuis: Research unambiguously shows that taxes, especially high marginal taxes, are damaging to an economy. Reducing those taxes does improve incentives. If we do not think so, we do not think that Canadians actually respond to costs and benefits. They clearly do.
If your goal is to get more revenue into the government, we ought to reduce the high marginal tax rates, particularly on capital. If we do that, the government would have more revenues and rising interest rates would not be an issue.
The Chairman: Mr. Orr, do you have anything to add on that point?
Mr. Orr: Yes, I have a couple of points. First, I do not see the policy in Budget 2006 on debt reduction being that different than that of the previous government. They were shooting for a 20 per cent debt-to-GDP ratio in 2013, and that was slightly modified. I do not think that is too bad. It is very attainable. Of all the fiscal policy issues that I think you should be concerned about, I would put this issue of prudence and debt reduction way down the list.
I would really focus on taking whatever fiscal room becomes available, reducing personal income taxes and reducing the business tax rates on business investment. That is by far the most important area that I think you should be focussing on.
Senator Mitchell: You finished your presentation on the tax reduction side by saying that you are optimistic that this government will focus on tax reductions more conducive to productivity and economic growth in the coming years. Could you tell us why you are optimistic about that? Their first crack at it certainly did not do that. Their first crack at it really was a triumph of votes over virtue. They did not do what they should have done for productivity, for real tax cuts, for meaningful economic initiative, and research and development for developing the economy of the future; they did not do it.
Mr. Orr: I am quite convinced that Mr. Flaherty would be on the same wavelength as I am on what I have said. I do not think reducing the GST came from Mr. Flaherty.
Senator Mitchell: We do not think so either. He does not really think so, either, going by his previous statements.
Senator Cools: Thank you for coming, gentlemen. One of you said that the average family in Canada pays $36,000 and change a year in taxes. Do you have a breakdown of that $36,000? How much of it is income tax and how much of it is consumption taxes? In addition to that, could you also give me an idea of what the average family income is? That is enough for now. I promised I would be brief.
Mr. Veldhuis: When I speak of an average family, I mean two or more individuals in Canada. The estimate for 2006 is that they will earn a little over $79,000. The tax bill comes to $36,650. I can give you an exact breakdown, although not off the top of my head. I can say that income tax accounts for roughly 32 per cent of that total. Consumption taxes are around 14 per cent. If you like, I can e-mail you the exact numbers. We do have a breakdown.
Senator Cools: You can send them to our clerk. I am sure you have the numbers. If that is the average, what is the median of family incomes? You know the difference between medians and averages, I am sure.
Mr. Veldhuis: Sure. We have not calculated the median. They are roughly the same. When I talk about an average family, we take an average around the average. We exclude the very high income families that would increase the average. Basically, when I talk about an average, I really mean it is what an average Canadian family is. It is not skewed by high income earners that would push the average up.
Senator Cools: Where are most Canadians in terms of family income and tax obligation?
Mr. Veldhuis: They would be clustered around the average.
Senator Cools: Around $79,000 a year?
Mr. Veldhuis: We are talking of a family of two or more individuals. If you are an individual, then your income will be lower. That is reflected in our numbers. We have the income and tax numbers for those families as well. It depends on your family structure — how many individuals; how many income earners.
Senator Cools: I can find out some more about that. I am just very interested, because $79,000 per annum for a family sounds quite high to me. Would any of the other two gentlemen like to make a quick comment on that?
Mr. Orr: I was not clear whether your question addressed only the federal government's collection of taxes or the collection of taxes by federal plus provincial. There is a little difference on how those are viewed. There is only one family, of course, and they pay to both levels of government.
Senator Cools: I was under the impression that Mr. Veldhuis, when he gave that number, was speaking about the aggregate of all taxes that the family was paying, regardless of to whichever level of government. I took it to mean that it included income taxes, consumption taxes, perhaps property taxes or school taxes, as they used to call them. Would you like to add to that?
Mr. Orr: I wanted to make sure that you were on the same wavelength.
Senator Cools: Good; we were, sort of, although I should have been clearer.
Mr. Veldhuis: The $36,000 includes federal, provincial and municipal taxes — the whole tax bill.
Senator Cools: That sounds like a huge amount of money to me.
Mr. Veldhuis: It is a huge amount of money. The reality is that Canadians pay around 46 per cent of their income to all three levels of government. That is really why we are here today: Canadians do need tax relief.
Senator Cools: We all agree with that. I believe that income tax was enacted around 1918 as a temporary measure. I was there for the GST, which I did not like then and still do not like.
The Chairman: That concludes our questioning. I would like to thank Mr. Orr, Mr. Williamson and Mr. Veldhuis for their testimony today.
The Chairman: Senators, is it agreed that we move to clause-by-clause consideration of the bill?
Hon. Senators: Agreed.
Senator Murray: Are departmental officials present to answer questions, should they arise?
The Chairman: We have 20 clauses to consider so if we have need, we will ask them to be seated.
It is agreed that we proceed with clause-by-clause consideration of Bill C-13, to implement certain provisions of the budget tabled in Parliament on May 2, 2006.
Is it agreed, honourable senators, that we proceed by groupings of clauses within the 13 parts? Copies of the bill are available and the parts are listed at the front.
Hon. Senators: Agreed.
The Chairman: Shall the title stand postponed?
Hon. Senators: Agreed.
The Chairman: Carried. Shall clause 1, which contains the short title, stand postponed?
Hon. Senators: Agreed.
The Chairman: Carried. Shall Part I, clauses 2 to 50, carry?
Senator Eggleton: I would speak to this because it puts into effect the GST reduction from 7 per cent to 6 per cent. From the evidence that we have heard, I think the government is taking the wrong direction. It should have proposed reductions in income taxes and not in the GST rate. The witnesses today and other economists who have expressed opinions about this matter have all indicated that this is not the right kind of tax reduction. Given a choice, it is better to reduce income taxes.
One option would be to amend the bill by taking the same amount of money and putting it into income tax reductions. However, those who have been here longer than I have indicate that the tradition in the Senate is to pass budgets originating in the House of Commons because money matters are the primary responsibility of the House of Commons, given the tradition and the constitutional framework. Some senators who share my reservations and concerns might tell me that there is room for the chamber of sober second thought to deal with this. Certainly, I believe that the government has made a mistake, but it was an election promise. It is regrettable that the government continues in a direction that is not in the interests of Canadians, given the choices. If this bill were to pass in the tradition of the responsibility of the Lower House prevailing, then I would say, on division.
Senator Cools: We have not moved a motion.
The Chairman: Are there other comments? I need a motion to adopt Part I, clauses 2 to 50?
Senator Angus: I so move.
The Chairman: It is moved by Senator Angus —
Senator Eggleton: On division.
Senator Cools: I would defer to Senator Murray, but my point is that we were proceeding informally. However, after Senator Eggleton's comments, we must proceed by motion.
The Chairman: There is a motion and we are on the question.
Senator Cools: When we began, we were not on motions.
The Chairman: Senator Cools was explaining what I was doing so that we all understand.
Senator Cools: We are on debate of the motion.
The Chairman: All those in favour of adopting Part I, clauses 2 to 50, signify by saying, yea.
Some Hon. Senators: Yea.
The Chairman: Contra-minded?
Senator Eggleton: On division.
The Chairman: Carried. Shall we proceed formally or informally?
Senator Cools: Formally.
The Chairman: Is there a motion to adopt Part II, clauses 51 to 88?
Senator Angus: I so move.
The Chairman: Is there debate? All those in favour of the motion, say, yea.
Some Hon. Senators: Yea.
The Chairman: Carried, on division.
Is there a motion to adopt Part III, which contains clauses 89 to 90?
Senator Angus: I so move.
The Chairman: Is there any debate on the question? All those in favour, signify by saying Yea.
Some Hon. Senators: Yea.
The Chairman: Contra-minded, if any? On division?
Senator Eggleton: No problem.
Senator Cools: Unanimous.
The Chairman: Carried.
Is there a motion to adopt Part IV, which contains clauses 91 to 98?
Senator Cools: I so move.
The Chairman: On the question, all those in favour signify by saying Yea.
Hon. Senators: Yea.
The Chairman: Carried.
Part V, motions to adopt clauses 99 to 167.
Senator Angus: I so move.
The Chairman: Anything on the question? All those in favour signify by saying Yea.
Hon. Senators: Yea.
The Chairman: Contra-minded? Carried.
Some are on division. If I do not hear any nays, I will say it is carried.
For Part VI, we are in into clauses 168 to 181. Is there a motion to adopt?
Senator Angus: I so move.
The Chairman: Any discussion on the question?
Senator Eggleton: Yes, I will speak on the question. This is another regrettable section of this piece of legislation, this one dealing with what they call the ``Universal Child Care Benefit Act'' which is a bit of a misnomer, since they are not doing anything that will help children to any great extent.
A good amendment here would be the one suggested by Mr. Battle, namely, that we have this benefit applied through the Canada Child Tax Benefit. If it were applied in that way, the same amount of money would actually help lower and modest income people. If any of my colleagues think that that is the direction in which we should be going, there is this other factor, as I mentioned earlier, of the House of Commons constitutional position with respect to it.
It is most regrettable that the current government has decided to cancel the agreements with the provinces. When we get to Part VIII, we see the payment there, but that is only for one year. They have now cancelled these agreements. The government does not get it when it comes to early learning and child care. It is doing nothing, really, to create additional spaces or quality daycare spaces. They have this $250 million that they say will do it, but they do not have a plan as to how to do it. That is another amendment that could be considered, namely, ensuring that they give that money to the provinces; otherwise, they are cutting out the provinces; in other words, going around them — something they accused us of doing in the past. They now seem to be taking up that mantle.
Mr. Chairman, I vote on division on this one.
The Chairman: We will have comments from Senator Rompkey and then Senator Murray.
Senator Rompkey: Are we making a report?
Senator Cools: Of course.
Senator Rompkey: We cannot make suggestions in the report?
Senator Murray: I do not think so. We have been over this ground before. All we are empowered to do is to pass or to amend or not pass the bill. I think the place for comments, and we have many of them, is at third reading debate. I am aware that committees sometimes attach a narrative to their report, but it is really no part of the report.
Senator Rompkey: I was thinking of an alternative, because of what Senator Eggleton has just said about the protocol between the two Houses. If we were to make suggestions, considerations —?
The Chairman: This committee has been of the view in the past that the time for any of us — and we have been well educated during these hearings — to make our comments is at third reading debate.
Senator Murray: Mr. Chairman, I have very brief questions from the budget plan at page 103, where it says ``to support the creation of child care spaces, the budget sets aside $250 million per year.'' It then goes on to say that the government will consult and what it will consult about.
First, I presume this $250 million will be provided for in a supplementary estimate?
The Chairman: Can you hear that question? Is there someone who can come down and help us with respect to that issue?
Senator Murray: Someone must know the answer; it is a simple question
The Chairman: We do not know which one because we have many different people. Could you identify yourself? Did you hear the question?
Senator Murray: The government announced in the budget plan, at page 103, that to support their creation of child care spaces, this budget set aside $250 million per year beginning in 2007-08. Where will that $250 million be provided for? Will it be in the Main Estimates for next year, then? Is that the case
Sheryl Harris, Acting Assistant Director, Social Policy, Human Resources and Social Development Canada: There are a few steps in the process before we get to that. There is a commitment to invest that amount of money. We are undertaking consultations during the course of the summer, as the budget actually sets out, with provinces, territories, communities, employers and parents, to develop the design of the initiative. That proposed design, or options relating to it, would go forward to cabinet in the fall.
Senator Murray: The money set aside in this budget will not be proposed until we see the Main Estimates for 2007- 08. Is that the situation?
Ms. Harris: Yes.
Senator Murray: I see nodding up there. Are those people officials from the Department of Finance? I do not know whether you have the answer to this question, but someone must have it. The government confirms that, consistent with the provisions of the agreements with the 10 provinces, which allow for their termination on one year's notice by either party, the government is phasing out the agreements at the end of March 2007. I understand that, of the 10 provinces that signed those agreements in principle, there are two or three that actually came back and signed a detailed funding agreement.
Ms. Harris: That is right.
Senator Murray: Do you happen to know the position of those two or three provinces? They are Quebec, Ontario and Manitoba, is they not?
Ms. Harris: That is right. Those are the three provinces
Senator Murray: What is their position about terminating the detailed funding agreements?
Ms. Harris: Those funding agreement included a termination clause that allowed for their termination within one year upon notice by either party. That notice has been served and that, then, constitutes a legal termination of those agreements.
Senator Murray: That is a different situation than the one that applied to the agreements in principle.
New Speaker: The agreements in principle, because they were not funding agreements, carried no obligation, in and of themselves, to provide funding at all. Funding that is being provided to all jurisdictions goes beyond what the legal obligation would have been that was carried just in the funding agreements.
Senator Murray: The government is not facing any legal challenge from any province in respect of either of the agreements in principle or in the detailed funding agreement?
Ms. Harris: No, it is not.
The Chairman: Senator Murray, other questions?
We have been trying to locate someone from the Department of Finance.
Senator Murray: That is all right. I have no more questions on that point.
The Chairman: We are still on the question with respect to the motion to adopt clauses 168 to 181. Senator Cools?
Senator Cools: I had wanted to challenge what Senator Eggleton was saying, but in the interests of time we should keep moving along. This is clause-by-clause study, but I was about to respond. In any event, Mr. Battle's opinion was his sole opinion; it was not supported by any other witness. We can just proceed or discuss that matter further at third reading.
The Chairman: Thank you, Senator Cools.
Anything further on the question? All those in favour of adopting clauses 168 to 181, Part 6, signify by saying Yea.
Some Hon. Senators: Yea.
The Chairman: Contra-minded, if any?
On division. Next is Part VII, clauses 182 to 189.
Senator Nancy Ruth: It is so moved.
The Chairman: Any discussion on the question? All those in favour, signify by saying Yea.
Hon. Senators: Yea.
The Chairman: Contra-minded, if any? Motion carried.
Part VIII, which contains clauses 190 and 191. Can I have a motion to adopt?
Senator Angus: It is so moved.
The Chairman: Anything on the question? All those in favour, signify by saying Yea.
Hon. Senators: Yea.
The Chairman: Carried.
Part IX, which contains clauses 192 to 198. Motion to adopt?
Senator Angus: I so move.
The Chairman: Anything on the question?
Senator Eggleton: We had two people before us. I talked to Senator Angus about this point, actually. I did not sense, at the end of the day, that they were far apart or apart at all on what they were thinking would be a reasonable way to proceed on this issue.
What I am suggesting here is not an amendment or anything like that. The gentleman from Genworth talked about market rules being put in place by OSFI, the Office of the Superintendent of Financial Institutions. The other thing that he asked for was with respect to a level playing field, noting that a 100 per cent guarantee for CMHC and 90 per cent for the private sector, he felt, was unfair. Maybe we could have someone look at that situation and perhaps the government should consider those two points.
Of course, I do not know if anyone from the Department of Finance wants to say anything about it now. In fact, I asked last night if we could have some comment from that department about this situation. If we have any now, let us hear it; if not, then let us just ask that they consider these two parts as a further evolution of this process.
The Chairman: Not specifically with respect to this bill but in terms of policy.
Senator Eggleton: It is arising out of this bill, Mr. Chairman. I will support the adoption of this particular part of the bill, but the points that were made are worthy of examination. I do not know if they are worthy of actually being implemented at the end of the day, but they are worthy of being looked at.
Senator Cools: In support of the concerns of Senator Eggleton, those witnesses last night did a lot to open the minds of the committee members and so perhaps what we should do is go on with the Main Estimates because it is under the rubric of the Main Estimates. We should revisit this question and bring them back, supported by CMHC and the other relevant players. We should give it our full attention.
The Chairman: They are good points.
Senator Eggleton: Really? I do not want to duplicate work here. Can we not get this off the table by just referring it?
Senator Cools: Referring what?
Senator Eggleton: Referring this matter of the market conduct rules.
Senator Cools: The committee cannot refer much of anything to anywhere.
Senator Eggleton: It is not referring anything out of the bill.
The Chairman: Your steering committee will take note of the interest of senators on this issue.
Senator Cools: Yes, highly noted.
The Chairman: All those in favour of the motion will please signify by saying Yea.
Hon. Senators: Yea.
The Chairman: Carried.
We are now into Part X, containing clauses 199 to 202. Is there a motion to adopt?
Senator Angus: I so move.
The Chairman: Is there any discussion on the question? All those in favour please signify by saying Yea?
Hon. Senators: Yea.
The Chairman: Contrary-minded? Carried.
Part XI. Is there a motion to adopt clauses 203 to 207?
Senator Cools: I so move.
The Chairman: Is there any discussion on the question? If there is no discussion or comment on the question, then all those in favour please signify by saying Yea?
Hon. Senators: Yea.
The Chairman: Contrary-minded? Carried.
Next is Part XII, which contains clauses 208 to 213. This part contains the Mackenzie Gas Project Impacts Act.
Senator Murray: Is there anyone here who can answer a question?
The Chairman: Who do we have here who could help us? We just had a couple of people on another issue.
Senator Murray: It will have to wait. It is not urgent.
The Chairman: We have Lorraine Clayton, Senior Economic and Policy Advisor, Federal Project Coordination Secretariat, Indian and Northern Affairs.
Ms. Clayton, thank you very much for being here. Senator Murray has a question he would like to put to you.
Senator Murray: I want some clarification here. This is authorization for $500 million to be turned over to this new corporation for the mitigation of Mackenzie Gas project impacts, the action to be taken by the Finance Minister on the recommendation of the Indian Affairs Minister. That minister may only make the recommendation if the project has not been terminated, and if the minister is of the opinion that progress is being made on the project.
I presume, in the present state of affairs that you are aware of, where negotiations are stalled, essentially, until there are some shovels put into the ground, nothing will happen with regard to this section?
Lorraine Clayton, Senior Economic and Policy Advisor, Federal Project Coordination Secretariat, Department of Indian and Northern Affairs: That is correct. The project is currently in the public hearings phase of the environmental assessment. You are correct that the proponent is revisiting its cost structure. Until those two events unfold, there will be no payments out of the fund.
Senator Murray: Indeed, the corporation probably would not be set up, would it?
Ms. Clayton: That is right. The corporation will not be established because there is a clause that talks about the coming into effect of the legislation, so that date will have to be set.
Senator Murray: That is all I want to know. Thank you very much.
The Chairman: Thank you very much for being here.
Is there anything further on the question? All those in favour please signify by saying Yea?
Hon. Senators: Yea.
The Chairman: Contrary-minded? Carried.
Part XIII contains clauses 214 to 217. It has been moved by Senator Angus that we adopt Part XIII, clauses 214 to 217. Is there any discussion on the question? All those in favour please signify by saying Yea.
Hon. Senators: Yea.
The Chairman: Carried.
There is a motion to adopt Schedule 1.
Hon. Senators: Agreed.
The Chairman: Thank you, Senator Rompkey. Is there anything on the question? All those in favour signify by saying Yea?
Hon. Senators: Yea.
The Chairman: Contrary-minded? Motion carried.
Schedule 2. Senator Angus?
Senator Angus: I so move.
The Chairman: It has been moved that we adopt Schedule 2 to this bill. Is there anything on the question? Senator Cools?
Senator Cools: No, I am just keeping my hand permanently up so that we have a mover.
The Chairman: All those in favour, please signify by saying Yea?
Hon. Senators: Yea.
The Chairman: Contrary-minded? Motion carried.
Shall clause 1, which contains the short title, carry?
Hon. Senators: Carried.
The Chairman: Do we have a motion? Thank you. The short title shall carry. Thank you, it is agreed.
Shall the title carry?
Hon. Senators: Carried.
The Chairman: Thank you. Shall the bill carry, without amendment? Can I have a motion?
Senator Cools: It is so moved.
The Chairman: It was so moved by Senator Cools. Is there anything further on the question? All those in favour of the motion that the bill carry without amendment signify thus by saying Yea.
Some Hon. Senators: Yea.
The Chairman: Contrary-minded?
Senator Eggleton: Yes.
The Chairman: Therefore it is on division. Thank you.
Shall I report the bill without amendment to the Senate at the earliest opportunity?
Hon. Senators: Agreed.
The Chairman: Thank you. I will do so. The normal process would be that I report it back this afternoon, and that third reading debate would start tomorrow. Any senators who are planning on speaking should be working on your speeches this afternoon.
Senator Angus: Thank you for an excellent job.
The Chairman: Thank you to all senators who stayed here.
The committee adjourned.