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Proceedings of the Standing Senate Committee on
National Finance

Issue 13 - Evidence - May 29, 2008 (Afternoon meeting)

OTTAWA, Thursday, May 29, 2008

The Standing Senate Committee on National Finance met this day at 1 p.m. to study the subject matter of Bill C-50, an Act to implement certain provisions of the budget tabled in Parliament on February 26, 2008, and to enact provisions to preserve the fiscal plan set out in that budget.

Senator Joseph A. Day (Chair) in the chair.


The Chair: Good afternoon, everyone, and welcome to this meeting of the Standing Senate Committee on National Finance. I am Joseph Day, I represent the Province of New Brunswick in the Senate and I am the chair of this committee.

The committee's field of interest is government spending and operations. We do this through estimates of expenditures and funds made available to officers of Parliament to perform their functions and through budget implementation acts and other matters referred to this committee by the Senate.

On May 15, 2008, our committee received authority and direction from the Senate chamber to study the subject matter of Bill C-50, otherwise more mercifully known as the proposed budget implementation act of 2008. We have been having hearings for the last two days in relation to various sections of this bill. I will remind those following these hearings that the bill is divided into 10 different parts.

In our first panel this afternoon, which will run until 2:30, we have several individuals, but each has a particular interest. I would ask honourable senators to pose their questions to each of the individuals after a brief presentation based on their background and expertise. They will not have, nor did we ask them to give us, an overview of the entire budget implementation act and all 170 sections thereof.

When you give your presentation, please describe to us the particular portion of the bill that is of interest to you and explain to us what the effect of this proposed legislation will likely be. Then we will engage in a question and answer period. The best way to handle this would probably be to have a presentation from each of you to ensure that your points are made to us before we enter into any question and answer period, unless there is a point of clarification from any senator who did not understand something.


First, let us welcome Mr. Pierre Céré from the Conseil national des chômeurs et chômeuses.

Pierre Céré, Spokesperson, Conseil national des chômeurs et chômeuses: To begin with, on behalf of our organization representing the unemployed, the Conseil national des chômeurs et chômeuses, I would like to thank you, Mr. Chair, and the members of the Standing Senate Committee on National Finance, for inviting us.

We have studied Bill C-50, especially part seven, which deals with the implementation of the Canada Employment Insurance Financing Board. We have studied the bill very carefully. We have also compared it with the existing employment insurance legislation, and have noted that most of the provisions in Bill C-50 effect very little change in the wording of the legislation already in force.

For example, Bill C-50 provides for a balance between income and expenditures, whereas section 66(1)(a) of the current Employment Insurance Act states that ``the premium rate should generate just enough revenue. . . to cover the payments''; moreover, section 66(2) of the current legislation states that the ``premium rate for a year may not be increased or decreased by more than. . . 0.15 per cent,'' which is what Bill C-50 stipulates.

Section 66(3) of the current legislation already authorizes the governor in council to substitute a different premium rate. The list could go on and on because such similarities are numerous.

On the other hand, there is a difference between the current situation and the establishment of the Canada Employment Insurance Financing Board: the creation of a separate account for the management of the reserve and the annual surpluses. This is not a trivial difference, because it expresses a desire for it no longer to be possible to use the employment insurance premiums paid by workers and employers for other purposes.

In fact, this has been abundantly documented over the years. It has been calculated that from 1995 to March 31, 2007, $54.1 billion in surplus funds was confiscated by the government and used for other purposes. This was not documented by people like ourselves, but by the Employment Insurance Commission in its own report.

I repeat, $54 billion in surplus funds was confiscated by the government and used for other purposes. The announced establishment of the financing board authorized exclusively to manage a separate account and set the premium rate, is not, therefore, bad news. That said, it would also have been possible to consider assigning that same mandate quite simply to the Employment Insurance Commission.

In either case, with or without the financing board, under the responsibility of the commission or otherwise, we should point out here that there is no reason to claim that everything is resolved. In fact, several issues remain entirely unsolved, including the $54 billion surplus that was confiscated and the huge cuts inflicted on the system.

Currently, the claimant/contributor ratio is 46.1 per cent, which means that out of 100 workers who contributed to the system and who become unemployed, 54 will not have access to the system because of the cuts made in 1996 and 1997. All that has also been documented.

As to the matter of the confiscated surplus of $54 billion, we believe that our institutions, our laws and our people should never forget what may be described as one of the greatest Canadian financial scandals of the 20th century: the diversion of thousands upon thousands of millions of dollars in employment insurance contributions that was supposed to have been used to offer better protection to the public.

A family with children cannot be raised amidst lies and denial. The same applies to the confidence that a population has in its laws and institutions. There have been political experiments elsewhere from which there are lessons to be learned. A great statesman, Nelson Mandela, has taught us that reconciliation has a price.

It is only when the truth has been established that reconciliation subsequently becomes possible. On the specific question of the confiscated $54 billion surplus, restitution must be made. Accordingly, we recommend a few amendments to section 7 of Bill C-50.

First, that Bill C-50 be amended to provide for the accumulated surplus to be recorded with interest until it is fully repaid; that the surplus thus be considered a debt owed by the Consolidated Revenue Fund to the employment insurance account, and that this amount be gradually refunded to the board. And I do mean gradually.

Of course we are not expecting to receive a $54 billion cheque next week. This could be done without affecting the equations for the premium rates. We also suggest that the concept of refundable advances provided for in section 80 of the act, page 121 of the bill, be replaced by non-refundable payments drawn from the accumulated surplus, as long as its credit balance remains positive.

We also suggest that the reserve provided for in section 70.1 of the act, page 119 of the bill, is insufficient. Nor is it clear whether they will actually pay the $2 billion. Employment insurance costs from $16 billion to $18 billion a year, which covers benefits, management and active employment measures. The reserve should probably be increased to $15 billion. Failing which, the payment of the annual surpluses must not affect the balance of the accounts on which the setting of the premium rate is based.

Also with regard to Bill C-50, we note that there is a process for appointing members to the board of directors. This seems like some kind of operation behind closed doors. We suggest that the appointment of the chairperson and directors be subject to the approval of the Standing Committee on Human Resources. This would make the process more transparent and democratic.

The key message we wish to convey to the parliamentarians attending this meeting is that the establishment of the financing board does not dispose of the real problem, whereby more than 50 per cent of the unemployed no longer qualify for employment insurance, even if they have made contributions. For us, this is the most important issue. The employment insurance plan must be improved to provide better economic protection for workers who are between jobs. This issue is predominantly a political one, and we must seek unifying solutions that can attract the desired majorities. This is what we humbly call upon parliamentarians and the various political parties represented in the Parliament of Canada to achieve.

Michel Bédard, Member, Task Force on Financing of Employment Insurance, Canadian Institute of Actuaries: Thank you for inviting the Canadian Institute of Actuaries to appear before the committee to discuss the establishment of the Canada Employment Insurance Financing Board. Our profession places public interest above that of our members or even of our profession. It is in this spirit that we published, in December 2007, our report on financing employment insurance, and that we are appearing today.

We support the establishment of an independent board, but we believe that there are serious problems with several aspects of this bill. The greatest merit of the new system will be that it will guarantee that after 2008, the costs and the premiums of the employment insurance system will remain balanced.

However, to oblige the financing board to reach such equilibrium on an annual basis, one year at a time, will be a serious handicap and will create erratic fluctuations of premium rates, and especially of those rates that have to increase in a procyclical way at the first signs of a recession.


Let us look at the following scenario: A recession hits Canada and unemployment levels rise to, say, 8 per cent, increasing payments to out-of-work Canadians by about $3 billion. The board's $2 billion reserve is depleted. The Employment Insurance account is forced to borrow another $1 billion from the government, even though, by the way, it still has a cumulative surplus. Unemployment levels may rise further. The government fiscal balance falls into deficit.

To cover the higher costs, EI premiums would need to rise by about 0.60 per cent — about 0.10 per cent to repay the $1-billion loan; another 0.20 per cent to top up the $2-billion cash balance, which, by law, will have to be replenished immediately in a single year; finally, a further 0.30 per cent to cover the higher numbers of Canadians losing their jobs and claiming benefits.

Consideration of raising the premiums above the legislated limit of 0.15 per cent will thus become a real problem. It will fall to ministers, and it will not be an easy decision in a weakened economy and weakened fiscal position. We can look at the many times government substituted itself to the Canada Employment Insurance Commission in the past to see that is a real risk.

The impact on Canadian businesses, which pay for nearly 60 per cent of the costs of EI, will be significant, as during such times profits and cash flow are limited. Workers who foot the bill for 40 per cent of the costs of EI will also be deeply impacted by such increases.

We believe that a five- to seven-year time horizon closer to the normal course of a business cycle would eliminate the necessity to raise premiums at the precise moment when they need to be stable, not increasing.

Our calculations also indicate that an actuarial reserve of $10 billion to $15 billion would be needed to stabilize premium rates over such a time frame. The rest of the existing surplus, which now stands at $56.4 billion as of March 31, 2008, is not needed for the management of the EI program.

Under the proposed system in Bill C-50, premium rates are likely to vary erratically from year to year even in normal times due to normal cost fluctuations.

The so-called reserve of $2 billion does nothing to prevent anything, as it must be rebuilt, topped up each and every year. In that sense, it is not a real reserve; it will not help stabilize premium rates at all.

We conclude with three recommendations. First, the Canadian Institute of Actuaries recommends that premium rates be set taking into account a five- to seven-year time horizon with an actuarial reserve of $10 billion to $15 billion drawn from the existing surplus of $56 billion — maybe not all at once but maybe spread over time. Second, Bill C-50 should be amended to allow the board and its actuary considerably more latitude in the assumptions and projections used to develop premium rates. Third, the institute reiterates its position of principle that the existing surplus of $56 billion belongs to the EI system and to its contributors and should be addressed clearly instead of being swept under the rug once again.

David Stewart-Patterson, Executive Vice-President, Canadian Council of Chief Executives: I wish to thank the committee for the opportunity to appear this afternoon to talk about Bill C-50.

I will offer some thoughts on three specific provisions of the bill: those affecting Employment Insurance, student aid and immigration. First, however, I will highlight results of recent research we have done on the subject of corporate taxation. I do not say that because corporate tax is a central feature of Bill C-50, but it was a major feature of the October 2007 economic statement and remains a critical policy lever when it comes to enhancing Canadian competitiveness.

Last year, we agreed to work with PricewaterhouseCoopers to produce a comprehensive picture of the tax revenue generated by large Canadian enterprises, the types of companies that make up our membership, the ones that are engaged internationally and tend to be most sensitive to the competitiveness of Canada's tax regime. The total tax contribution methodology that PricewaterhouseCoopers uses measures essentially four types of payments. It looks at the taxes the companies pay directly, taxes that companies collect and remit to governments in the course of their activities, other payments such as rents and resource royalties and, finally, the costs of complying with Canada's tax rules.

There are three key messages here. First, corporate income tax, which has been the central feature of policy today, is only one aspect of the total corporate tax burden. In fact, the federal and provincial levels of corporate income tax represent only 2 of 49 different taxes major companies are currently paying. That includes only one tax, property tax, that takes place at the municipal level. The rest are all federal and provincial. For every $1 in federal and provincial corporate income tax, companies are paying 82 cents in extra taxes and 67 cents in other forms of payment. They also collect and remit to governments a further $3.41 from customers and employees in the course of their operations.

Second, large enterprises make significant tax contributions. In 2006, the 39 companies that took part in this survey bore $10.5 billion in taxes that they paid directly and collected a further $19.8 billion on behalf of governments. Those with the 10 largest contributions — one quarter of the sample — generated almost two thirds of the tax revenue.

I want to leave you with that thought. Having big companies in this country matters, and it matters to governments.

Third, the complexity of Canada's tax system makes compliance costly. Participants in this survey spent an average of $2.1 million and had 11 full-time employees or the equivalent working just to fill out tax forms. That is not financial reporting and audits; that is just dealing with tax matters.

We recognize that large enterprises are important contributors to Canada's competitiveness in terms of their productivity and innovation. I am not sure how many Canadians realize how significant even a small number of large companies are in terms of their contribution to the revenues of Canadian governments.

I will now turn to the other three drivers of competitiveness addressed specifically in Bill C-50.

With respect to the Employment Insurance system, the business community has argued for years that Employment Insurance premiums should be set by an arm's-length body and that funds collected through these premiums should be managed in a segregated fund. We therefore strongly support the creation of the proposed Canada Employment Insurance Financing Board.

We do have a continuing concern about the tendency to use the Employment Insurance system to provide benefits that might be better characterized as social programs. Over the longer term, we believe that money raised through Employment Insurance premiums should be focused more precisely on its core mandate of providing insurance against temporary job loss. Other programs should be funded through general revenue rather than through EI premiums. With that said, the creation of the new board marks a critical step in the right direction.

I will next speak to the issue of student aid. In an increasingly knowledge-based economy, we must ensure that every single Canadian is both able and motivated to participate in some form of post-secondary learning, whether that takes place through college and universities, on the job or through apprenticeships.

The Canada Millennium Scholarship Foundation got off to a rocky start but, over time, found ways to work with provincial governments and became an important catalyst for innovation in improving access to post-secondary education. The government has opted to dissolve the foundation and replace its scholarships with a new and more robust approach to student aid. The design of the new rules will be critical in ensuring that the federal resources allocated to student aid are as effective as possible in overcoming financial barriers to success in post-secondary education.

I also believe that the government should move to preserve and build upon the foundation's research capacity. In particular, I suggest that it pass the research mandate from the foundation to the Canadian Council on Learning, which has become an important and credible source of information about how Canada is doing at education and what policy choices seem to be working best. This, in turn, will require renewal of the CCL's federal funding, which is otherwise set to expire next April. I simply bring that to honourable senators' attention.

Finally, I would like to speak to the provisions of Bill C-50 as they affect immigration. Canada is facing a serious and growing shortage of skilled labour. These shortages are most obvious and acute in the resource sector, but they are affecting businesses of all sizes in every industry and in every region of this country. These shortages will only get worse as our population ages.

Both Canadian employers and potential immigrants today face a huge backlog of some 900,000 applications that, under current rules, must be processed in the order they are received. The result is that a skilled worker, ready to contribute to Canada's economy, may have to wait years before even having his or her application processed.

This proposed legislation would give the Minister of Citizenship and Immigration some discretion to set priorities within the system. This should help to speed the flow of immigrants with skills that are urgently needed in our economy. While any legislative provision for ministerial discretion may justifiably cause concern, the process outlined in this bill for issuing ministerial instructions, in my view, does provide both transparency and accountability.

The current system is not working for immigrants and is not working for Canada. We need improvements now, and we cannot spend years more in pursuit of perfection. Whatever flaws anyone may see with the specific process proposed here, it does represent a clear improvement that will start to make a difference right away.

On all three of these issues — Employment Insurance, student aid and immigration — Bill C-50 moves public policy toward better solutions. In each case, there is more work to be done, but we support the intentions of the bill and are prepared to work with government to ensure that the resulting new programs and institutions achieve the best results possible for Canadians.

The Chair: Thank you, Mr. Stewart-Patterson. That was very helpful. Because you made several recommendations, I should point out to honourable senators that we have your report and it is being translated. We will circulate that to everyone once it is in both official languages. We have the transcript of today's hearing in both official languages as well.

Garth Whyte, Vice-President, Canadian Federation of Independent Business: On behalf of the Canadian Federation of Independent Business, CFIB, and the 105,000 business owners we represent from every sector and every region of the country, I want to thank you for inviting me to provide comments on Bill C-50.

Small and medium-sized businesses play a major role in Canada's economic growth and job creation, accounting for almost 50 per cent of the GDP and 60 per cent of total employment in Canada. I have distributed a deck of surveys based on tens of thousands of responses from business owners. I will be referring to it.

I would like you to refer to the first graph in the document. This graph tracks the GDP to CFIB's business barometer based on small business owners' expectations for their own business.

Senator Nancy Ruth: Can I ask you to speak a little more slowly?

Mr. Whyte: Certainly. I apologize. I am looking at the clock. There is a lots of information here.

As you can see, our members are cautiously optimistic concerning the economic downturn.

I ask you to turn to page 2. As you can see there, 30 per cent of small business owners say they plan to increase employment in 2008 compared to 8 per cent who plan to decrease employment. This is good news when considering future unemployment rates, EI premiums and an EI surplus.

Page 3 shows the issues of highest priority to small business firms. It says there that Bill C-50 touches on the top six issues of our members.

Our immediate reaction to the budget is summarized in the report card that we have attached and distributed for you. We would be happy to answer questions on any issue you want to talk about in that report card, but I want to focus the rest of our presentation on the establishment of the Employment Insurance Financing Board.

The overall message we are delivering today is that EI is a major concern for small business owners. They feel the EI system needs to be fixed for three reasons: first, the current rate-setting process is flawed; second, the EI surplus continues to grow; and third, the EI program does not address today's labour market needs. This concern is so high that we currently have in my office 20,000 action alerts signed by business owners, and we will be delivering them to Minister Solberg at Human Resources and Social Development Canada, HRSDC, in a couple of weeks.

On page 4, you can see that of all the various taxes that a business must pay, business owners identified payroll taxes, such as EI, as affecting the growth of their business the most. The graph on page 5 shows that reducing taxes and EI premiums allows business owners to increase wages, hire additional employees and provide more training.

On page 6, we show that our members feel a good first step to fixing EI is to move the EI account from general government revenues to a separate fund. They also think there is a need to improve the management and governance of the EI account.

Currently, only one third of our members are satisfied with the federal government's approach to managing EI. They believe that the EI premiums should be used exclusively for EI purposes.

CFIB supports the creation of a Canadian Employment Insurance Financing Board. The rate-setting mechanism has been improved, while still retaining some of the positive aspects, such as a fixed date to publicly announce the new premium rate and limits to ensure they are not wildly fluctuating rates from year to year.

We are pleased that the EI operational surplus will no longer flow back to general revenues. The new reporting mechanism should ensure accountability and transparency.

However, we do have concerns and issues that should be addressed. For example, will there be significant operating costs that employers' and employees' premiums must cover? Will this truly be an arm's-length board, or will it be a partisan board with members changing as political parties are newly elected? Will this board be able to address the issue of hundreds of millions of dollars paid by employers with EI over-contributions, an issue that is a high priority for our members, as you can see on page 8 of our brief?

We are also concerned that the new system will create pressure to increase rates rather than to decrease rates because of administrative costs and the limited EI surplus provided, on top of the annual increase in the maximum weekly insurable earnings.

Finally, we are concerned that employers and employees must bear the risk of paying for economic downturns after already building up, as I heard from the experts, a $56.4-billion surplus. It is shameful and unfair. At the very least, the federal government should cover off any future shortfall in an EI account if the need arises.

However, it is a good first step to fixing EI, and we agree that the Canada Employment Insurance Financing Board should not be involved in EI policy and programs, but that is where there is dire need to fix EI.

The EI system is failing. It does not address employers' or employees' needs. In 2006, only 44 per cent of EI premiums were spent on regular benefits. You can see that on page 11.

The vast majority of the over 9,000 business respondents in one survey on page 12 were unaware of or did not use EI programs, such as labour market partnerships, self-employment programs, job creation partnerships and employment assistance services.

It is not fair that businesses, especially small businesses, continue to pay 60 per cent of EI premiums. We feel the rate should be gradually moved to a 50-50 or a 40-40-20 split of premiums where the government pays 20 per cent.

Finally, the EI system needs to be fixed because it does not address today's labour market trends. With the aging population, many companies are begging for employees.

The graph on page 14 clearly shows that as the unemployment rate has decreased over the decade, our members' concern with the shortage of labour has increased dramatically. The shortage of qualified labour challenge has steadily increased and is expected to increase over many years to come. In March of this year, CFIB released its Help Wanted report, looking at the long-term vacancy rate. As you can see on page 15, the long-term vacancy rate doubled since we first did our study in 2004. The 4.4 long-term vacancy rate that we found means that there were 309,000 long-term vacancies last year. These vacancies are in every province. Our members have told us that it is getting harder and harder to find employees in the future.

Canada needs a comprehensive long-term strategy to deal with the shortage of labour challenge. CFIB has been working with the provincial and federal governments in several areas to deal with this critical issue. We have worked on education and training, apprenticeship, co-op education, business succession and immigration. However, EI policy is one area where little has been done. EI policy can play a significant role in either alleviating or exacerbating the labour shortage issue. We are concerned that the current EI program is hindering rather than helping employers and employees deal with the shortage of labour.

As you can see on page 18, one out of five employers stated they had difficulty hiring people because people would rather stay on EI benefits. In some provinces, it was closer to 40 per cent. We need to fix EI so that it better meets the needs of employers and employees. It is too important a program to leave in its current state for another 15 years.

The creation of the Canada Employment Insurance Financing Board is a good first step, but much more needs to be done in the near future.

Erin Weir, Economist, United Steelworkers — USW: Thank you for inviting me to this hearing today to represent the United Steelworkers union. I would like to provide an overview of the direction of the budget that Bill C-50 proposes to implement and make some specific points about the changes it proposes to the Employment Insurance program.

Budget 2008 was formulated in the context of some quite severe national challenges. Canada's manufacturing sector is in crisis. It has lost 378,000 jobs since November 2002. That is about one in every six of the manufacturing jobs that existed in Canada in November 2002. As the recent census confirmed, employment earnings have been essentially flat over the past quarter century, and the gap between the rich and the rest of us continues to grow ever wider. Canada's greenhouse gas emissions continue to increase. Our public infrastructure is crumbling. The list goes on.

In the context of all of these pressing needs for government action, I find it quite shocking that the government has proposed a budget with the least new public spending of any federal budget in well over a decade. This severe lack of funds for important public purposes is a direct result of very deep tax cuts that will disproportionately benefit wealthy individuals and profitable corporations. When the current government's tax cuts are fully implemented in 2012-13, they will have cost $14.8 billion in lost corporate income tax revenues, $14.2 billion in lost GST revenue, and $11.2 billion in lost personal income tax revenue. These figures sum to $40.2 billion. That is the grand total, and it exceeds the $40.1 billion that the federal government expects to spend on the Canada Health Transfer and the Canada Social Transfer combined in 2012-13.

In other words, if the federal government had not cut taxes it would have had the resources to double its transfers in support of health care, post-secondary education and welfare.

Our fundamental criticism of Bill C-50 is that it proposes to implement a budget that does not address the pressing national challenges facing Canada and deprives future governments of the fiscal capacity to do so.

I would like to speak more specifically about the changes that Bill C-50 proposes to the Employment Insurance system, which is a major concern to our union and the rest of the labour movement.

During the past 15 years, when the Canadian economy was growing, unemployment was falling and Employment Insurance premiums consistently exceeded Employment Insurance benefits, the government was happy to include Employment Insurance as part of its general revenues. Now that the Canadian economy is slowing and unemployment is rising, it looks as though premiums might soon fall short of Employment Insurance benefits and the government is saying that Employment Insurance needs to be taken out of general revenues and put into a separate fund.

Philosophically, we agree that the Employment Insurance system should be in a separate fund. Our concern is that the federal government is proposing to put only $2 billion into that fund. That is far less than the accumulated surplus of $54 billion of premiums over benefits in the Employment Insurance fund. It is also quite a bit less than the $10 billion to $15 billion that would be needed to maintain Employment Insurance benefits without raising Employment Insurance premiums in the event of a recession. You have just heard those figures again here today from Mr. Bédard. If a recession occurs, the regime proposed by Bill C-50 could result in the program having either to increase premiums or to cut back benefits. This would be the worst possible response to a recession. Putting only $2 billion into the fund erodes the Employment Insurance system's role as an automatic stabilizer for the Canadian economy.

A related concern is that Bill C-50 rules out any improvements to Employment Insurance benefits. Over the past decade and a half, the proportion of unemployed workers who can access Employment Insurance benefits has fallen from about 80 per cent to below 40 per cent. We believe that the $54-billion accumulated surplus in the Employment Insurance fund is more than sufficient to improve EI benefits and ensure that most unemployed workers can actually get access to that assistance, but Bill C-50 takes that surplus off the table.

In addition, Bill C-50 proposes that any new surplus that accrues in the now separate fund would have to be used to finance premium reductions as opposed to benefit improvements.

In summary, our concern with the changes that Bill C-50 would make to Employment Insurance is that this separate fund containing only $2 billion will not provide adequate EI benefits to Canadian workers who find themselves unemployed.

Senator Ringuette: I have listened very carefully to every presentation.


Of course, I understand that your association is uncomfortable with the decision of investing a $2 million fund, through this bill, in the new board rather than following up with what we estimated to be a $15 billion reserve. Did your association consult any actuaries, like Mr. Bédard said in his presentation, to draw the same conclusion?

Mr. Céré: There is a consensus forming in Quebec. We closely collaborated with union organizations in studying Bill C-50. Some persons who are key stakeholders in union files dealing with employment insurance, have a close relationship with the Canadian Institute of Actuaries. Of course, we consulted the documentation produced by the institute as well as the briefs that were tabled. A consensus seems to be forming on our side, among the unemployed and the unions. Recently, we appeared before the Finance Committee of the House of Commons and the Human Resources Committee. They all agree in saying that the $2 billion reserve is clearly insufficient. Moreover, it is uncertain because the section is drafted using the conditional tense.

We do not know whether they will deposit the $2 billion sum, which by the way is insufficient. The system costs between $16 billion and $18 billion a year. In hard times, $2 billion is not enough. We need a bigger reserve. Currently, the Consolidated Revenue Fund is a creditor to the employment insurance account and it has a $54 billion debt.

The most recent figures showed, for the year ending on March 31, 2007, a $3 billion surplus. A few months from now, we will know the figures for the fiscal year ending on March 31, 2008. According to some persons who are closely following the system's development, we can expect another yearly surplus of about $2 billion. It would be better and more responsible towards the system if this money was placed in a reserve fund.

Senator Ringuette: If the surpluses go above the 2 billion in the reserve fund, it will result in smaller premiums rather than in larger benefits. Did your group, as Mr. Weir said, study this specific aspect of Bill C-50?

Mr. Céré: Yes, and we are very concerned about this aspect. Supposing that on March 31, 2008, we have a $2 billion surplus; as we understand it, the financing board would be established, and the Consolidated Revenue Fund would pay this $2 billion surplus to the board. The board, in turn, must be accountable for these sums when setting the next premium rate. Thus, the rate would go down, with a maximum variation of 15 per cent. Indeed, these monies must be used to improve the situation.

If there is any doubt, the Department of Human Resources estimates that the daily benefit ratio of 45.1 per cent should be increased. This concerns coverage. In order to achieve this, eligibility criteria must be less stringent, the benefit period must be extended, and the benefit rate must be recalculated in a more humane and intelligent fashion. Without getting into really technical detail, concerning the reference period and denominators, suffice it to say that current formulas are a bit barbaric. Making adjustments requires spending money that is currently in the Consolidated Revenue Fund and could be transferred to the account and to the EI financing board, in order to generate a larger reserve fund.

Mr. Bédard: I am in a position to confirm the data presented by Mr. Céré. We have assessed the simulations. The necessary reserve to stabilize contribution levels would truly be between $10 billion to $15 billion. I stand even more solidly behind that statement because I was the chief actuary for the employment insurance account up until 2003.

What Mr. Céré is describing with respect to the effect of cutting contribution rates is absolutely real and accurate. Imposing a limit of 0.15 per cent could push employment benefits down when unemployment levels are high. When there are considerable surpluses, the 0.15 per cent limit could actually force the financing board to maintain the surpluses.

I have carried out other simulations which show that the surplus could actually grow to $6 billion, $8 billion or $9 billion under the management of the financing board if the 0.15 per cent limit comes into effect when there is a drop in unemployment levels.

Senator Ringuette: Did you carry out any simulations in the case of an increase in unemployment levels? Let us not kid ourselves, currently, the economy is not expanding; it is slowing down.

Mr. Bédard: As I have indicated in my presentation, if the unemployment rate were to suddenly spike to 8 per cent — and we all recall the last two recessions during which the rate was in excess of 10 per cent — we could expect costs to increase by a margin equivalent to a 60 cents increase in the contribution rate. But the act establishes a limit of 0.15 per cent. Would governments then intervene? In the past, governments have intervened to eliminate such limitations.

Mr. Weir: I would like to add that it is not just a simulation, but a real fact. As we speak, unemployment rates in Canada are on the rise. According to the most recent report of Statistics Canada, there are 1.1 million unemployed people in Canada since November 2006. I fear that the situation is getting worse.

Senator Ringuette: Some people and some groups are still hanging on to the old Keynesian economic model: if costs fall, production increases, as does the number of workers. With a combination of good management, capital and human resources, we can maximise our production. Regardless of the variation in the cost of human resources, the rate of human resources required to maximize production remains the same.

Mr. Whyte, the statistics you received from your members show that if there were to be a cut in employment insurance contribution rates, there would be a subsequent increase in employed persons. That is why I referred to the Keynesian economic system which dates back to the 1950s and 1960s, and is no longer relevant in this day and age if we consider ourselves to be good managers.


Mr. Whyte: We represent the modern economy, not the Keynesian economy. We represent entrepreneurs. We were the first ones on the record — and Mr. Bédard will concur — complaining about the surplus for employees and employers. Now we have everyone at the table talking about the $56-billion surplus. We were the first to talk about that.

Joyce Reynolds, Executive Vice-President, Canadian Restaurant and Food Services Association: We were right up there too.

Mr. Whyte: You are right. We put it out there. Mr. Martin would be very upset with us. We know the money was being used elsewhere. We do not need lessons from anyone on that.

As the steelworkers drop people and cut back, our members hold on to people and have increased employment in tough times, and that has been proven following September 11. It was not Enron or Nortel that kept Canada's economy going; it was our members. We feel that they do have a strong opinion on what they do. We asked them what they would do if they were able to retain their money, not EI premiums but all taxes. They said they would invest in people, in employees and in their communities, and Canadians agree with that.

What we are concerned about, and everyone here is in violent agreement, is that the $2 billion is not enough. We think it is wrong that the government should have to backstop any downturn. They should have to pay for whatever surplus is required, and the premiums for employees and employers should not go up.

We are putting another solution forward. One reason we went into deficit and premiums went up so high is because the government withdrew its 20 per cent payment. They used to pay 20 per cent of premiums. If the government paid 20 per cent of premiums, that would be another way to offset any increase in premiums.

That is a suggestion we are trying to make because we do not think it is fair that employers in New Brunswick, and we have a lot of members there, have to pay higher premiums and are not seeing any outcome.

Senator Ringuette: Have you polled your membership about what has been proposed in the past by the then-official opposition and the now-government in regard to having a risk premium to EI?

Mr. Whyte: Again, we are open to reforming EI, but I do not know how a merit system or an experience rating system for EI would work. It has not worked in many workers' compensation boards. It is a difficult process. Our concern is that the current program is not being managed appropriately. They do not measure the effectiveness; they measure take-up. They do not measure outcomes, people getting jobs. They measure the number of people getting training, but they do not measure whether that training results in jobs. I am not confident that if we went to an experience rating system the system would be stable. We would look at it, but the first step was to make it a separate fund so that it was not used as a slush fund by government for spending on other things.

Senator Ringuette: Mr. Whyte, how many of your members are seasonal employers?

Mr. Whyte: There are quite a few.

Senator Ringuette: What would be an average percentage?

Mr. Whyte: It is 20 per cent, 30 per cent. We represent fishers, agriculture workers, truckers.

Senator Ringuette: That is representative of the Canadian economy, where 25 per cent of employers need seasonal people to work for them.

Mr. Whyte: That is why we need to look at the system to accommodate the people who need the system, rather than the current system that is not working.

The Chair: I want to introduce another witness. You will appreciate that putting together such a highly talented and knowledgeable panel in such short notice involved some scheduling difficulties. It is our fault. We did not get to Joyce Reynolds, Executive Vice-President of the Canadian Restaurant and Food Services Association. We did not get the notice to your attention in time and we apologize for that. We are very glad that you came early, thinking you would go on later. You are welcome to join the panel. We have just started our questions. There has been a lot of discussion about the $2-billion reserve. We have a consensus in that regard, it would seem.

Ms. Reynolds: I am here on behalf of the Canadian Restaurant and Food Services Association, CRFA. I appreciate the opportunity to provide the views of Canada's restaurants and food service operators. I have appeared before the House of Commons Standing Committee on Finance and the Standing Committee on Human Resources, Social Development and the Status of Persons with Disabilities many times on the subject of EI. This is my first time before the Senate committee.

Because the food service industry is labour intensive, $3 out of every $10 in sales, we feel we pay a disproportionate amount of payroll taxes. Recognizing the burden that artificially high Employment Insurance rates place on labour- intensive industries, CRFA has long been on record as objecting to the setting of EI premiums at excessively high levels and has argued, along with Mr. White's organization, about the use of EI for purposes unrelated to EI.

CRFA long ago concluded that the only way to ensure that Employment Insurance premium rates are set on a break-even basis is to establish a dedicated trust fund that is separate from Canada's public accounts and operated at arm's length from government.

Over the last 12 years, EI premiums have been set at rates that consistently far exceeded program costs, resulting in the accumulation of the $54-billion to $56-billion surplus in the EI account. This has resulted in an enormous financial obligation to the employers and employees who exclusively fund the program.

We can debate about whether the $2 billion is enough. In principle, the idea of a counter-cyclical rate-setting process makes sense, but in practice it does not work. As far back as 1994, in a submission to the Standing Committee on Human Resources, CRFA expressed concerns about this approach. At that time, we said, ``Unfortunately, our experience has been that surpluses have been too irresistible for government, and have been diverted to other initiatives. CRFA cannot support the anti-cyclical financing approach unless there is a statutory guarantee that the surplus would be accumulated for an economic downturn only.''

Our fears back in 1994 were well-founded, because governments quickly became dependent on the funds in the EI account. The 1986 directive of the Auditor General to integrate the Employment Insurance program into the overall finances of the government was used for many years as an excuse to justify the diversion of the EI funds. It has been clarified by the Auditor General many times that it was never the intent to have EI revenues as part of the government's general tax revenue stream, nor for them to be used for purposes other than EI. The only reason for the directive back then was that the EI account was in deficit and contributed to Canada's overall deficit, which in turn impacted the overall borrowing requirements of the government. We know that there has been an enormous improvement in federal government finances since then.

We also know there will always be pressure on government to increase spending on a multitude of programs and activities and to lower taxes in a host of areas. As a result, we are pleased that Part 7 of Bill C-50 will no longer allow the EI program to be treated as a cash cow. Payroll taxes are profit-insensitive and regressive and should never have been part of the government's general tax base.

A counter-cyclical approach to rate-setting was pointless as long as the EI account was consolidated with general revenue, because government accounting principles do not allow surpluses to be carried forward year to year. Employers and employees were always vulnerable to premium rate increases when the unemployment rate went up, regardless of the reserve in the EI account.

CRFA recognizes that the $4-billion EI surplus is a notional account and given fiscal realities cannot easily or immediately be turned over to the proposed Canada Employment Insurance Financing Board.

Perhaps a better way for government to return the $54-billion surplus would be to begin contributing to the EI program again. Because an increasing percentage of benefits are unrelated to the labour market, CRFA believes that it is time for government to pick up a share of the cost of the EI program on a permanent basis. A broad range of social programs has been added to EI over the years, such as benefits for parental leave and compassionate leave. These benefits, while introduced as a response to genuine societal needs and concerns, are unrelated to the original intent of EI and now comprise more than 40 per cent of program costs.

When the EI program began, its purpose was to provide income support for those temporarily and involuntarily out of work. The cost of the program was split between employers, employees and government. Over time, government gradually reduced its level of contribution and, in 1990, withdrew its contribution altogether. Today, employers shoulder 60 per cent of the costs of the EI program, with employees contributing the balance, despite the fact that only $8 billion of the $14.4 billion of benefit disbursements in 2006 were for regular or pure EI benefits.

CRFA has long been on record as supporting a more equitable split in EI contributions. CRFA recommend a cost- sharing formula of employers, 40 per cent; employees, 40 per cent; and government, 20 per cent. Adding government as a partner in the cost of the program would make it more equitable, would draw down the $54-billion EI surplus on the books and ultimately improve accountability.

To conclude, CRFA supports the establishment of the Canada Employment Insurance Financing Board and a stand-alone EI fund to be administered at arm's length from government. This is the only fair and responsible way EI premiums can be set on a counter-cyclical basis. It also allows the program to be maintained on a sound financial footing without temptations for government.

CRFA believes that it is time for the government to begin sharing in the cost of their program again and to make it more equitable as a means of drawing down the $54-billion surplus. CRFA also believes that Part 7 of Bill C-50 provides necessary statutory protection for employees and employers by removing the option of having their hard- earned premiums used for other purposes.

The Chair: Thank you very much, Ms. Reynolds. We appreciate the specific recommendations you have made. That will help us focus on the issues that have been raised.

Senator Di Nino: First, I wish to deal with this $54-billion or $56-billion surplus. We must all understand that these funds were collected and spent. They do not exist. The previous government, in its wisdom, decided that it would help pay down the deficit, the debt, in this other way. It was another form of tax.

There is no kitty. There is no bank account with a whole bunch of money sitting there. I want to put that on the record because I think it is important. Everyone keeps bringing it up, but no one says that the money is gone. That is now on the record.

I want to deal next for a moment with this change to the EI and get some reaction on some of the comments I will make and the questions I will ask, from anyone who wishes to participate.

First, I wish to address the creation of this new board to manage the financial affairs and set the premiums. Are we on the right track by looking for experts, people who have some skills and background in the management of money and in managing the affairs, people who are able to project, as much as is humanly possible, what the next year or so will bring and who are able to set those premiums? Are we going in the right direction there?

Mr. Bédard: It is going in the right direction by setting out a definite mechanism and a clear mandate. However, the mandate is so clear that actually the board's authority will be very limited. The main task of the people who work for that board will be to prepare quarterly and annual financial statements. They will not have much of substance to do. Even the $2 billion that they must invest will have to be invested short term. This one-year rate-setting approach restricts their mandate to such an extent that, while it is a step in the right direction, it needs to be built upon and expanded considerably.

You are correct on your other point, namely that the $54-billion or $56-billion has been spent. This case is before the Supreme Court of Canada at this time. The government is still accruing interest on this amount, by the way.

Mr. Stewart-Patterson: First, on the issue of expertise and skills, I think the government is absolutely correct to ensure that the board is composed of people who have expertise that is relevant to the mission of the board.

I would concur with my colleague. Over time, I would encourage a more substantial mandate for the board rather than restricting it to being short term, and perhaps even consider granting the board the ability to make recommendations to government on the broader mission and mandate of the EI system.

There is a second stage in EI reform that needs to take place. That does not take away from the fact that this is the right thing to do as a starting point, but I think we should recognize that from this starting point there is more to do, and we should consider how the board might be composed in order to look after not only the immediate responsibilities but also the longer-term issues.

If I may, senator, let me put myself firmly on the record as agreeing with you that the $56 billion is gone. Certainly, we would not support any potential measures to suddenly inject $50 billion plus back into the EI account. I am not prepared to advocate that the government run a $50-billion deficit; I am certainly not prepared to advocate another $50 billion to increase taxes somewhere else; nor am I prepared to advocate $50 billion of spending cuts in other areas. We have to deal with the reality. Previous governments have spent or used that money for other purposes. Judgments were made at the time, and those decisions are done.

Having said that, there is a moral duty on the part of the government that, having taken money out of the EI system for so many years, the government should be there as a very clear backstop, particularly since we are setting up this segregated fund at a time when we see potential economic weakness in the near term.

That raises the questions of what is an appropriate surplus or an appropriate reserve and how would we get that money in there. I am not sure. There seems to be a fairly broad consensus that $2billion looks thin and does not provide a lot of confidence that that is enough to ensure rate stability over the course of a five- to seven-year economic cycle. Is it as large at $10 billion or $15 billion, which is the traditional analysis? I must defer to the expertise of my colleagues on this score, but I would simply observe that since the days when the surplus was building up — and $10 billion to $15 billion was used as the actuarial standard estimate — we have moved into an era where unemployment rates are lower and are now structurally lower. In other words, because of our demographics, I do not see us going back to double-digit employment. Is there less risk now of spikes upwards in unemployment?

Second, so many of the benefits flowing out of the EI fund now are for purposes such as maternity or compassionate leave, which are not cyclically sensitive. In other words, does the fact that so many of the benefits do not and will not vary with the state of the economy reduce the risk of fluctuation and, therefore, the appropriate amount of reserve?

This question of what exactly is the right amount is still open. To the extent that there is a judgment that there should be more than $2 billion in there, we need to look at what is the least intrusive way of ensuring that we get to that level.

The suggestion I have put on the table for consideration is that we look at sources such as unanticipated year-end surpluses in the general revenue account and consider shuffling some or all of those into the EI account instead of onto debt, until we have established a sufficient level of reserve. That is the least intrusive mechanism but not the only way to go. That comes back to your first point, senator, which is that any money that goes into this account must come from somewhere, and it comes out of the resources that are available and on the table for the government today.

Senator Di Nino: If I asked everyone to answer, I made a mistake, because obviously that would take up all the time. I do want to make a couple of other points and I will be specific about whom I would like to answer.

Mr. Bédard, when Budget Plan 2008 was presented to us, part of the information that was provided was the projected unemployment rate over the next two or three years. The Department of Finance tells us that based on a survey of private-sector forecasters — and I am assuming that a number of them, if not all of them, would be economists — we are looking at rates considerably lower than the rates that you have mentioned, between 6 per cent and 6.5 per cent.

The government based its thoughts and its own forecasts on real data that comes from real people out there, not from one person but from a group of people. Where do you get the 8 per cent rate that you are looking at when everyone else seems to be a couple of points less than you are?

Mr. Bédard: It is a what-if simulation. You are quite right that the current situation does not look as bleak as that. However, I might point out that recessions are never anticipated. I could bring you back to the early 1980s and early 1990s and show you forecasts made at that time of unemployment staying at around 6 per cent to 7 per cent. That jumped up to double digits. I am not saying that will return, but you must prepare for bad situations. One hopes they will not return, but it is a possibility.

Senator Di Nino: Let me follow that up with a comment. Mr. Stewart-Patterson talked about the moral duty. The guarantee of the Government of Canada through its Consolidated Revenue Fund is in effect the moral duty they are looking for. As you said, if it will be $5 billion instead of $2 billion, we must go to CFI's wonderful report card and ask, ``In which of these areas do you want us to reduce benefits?'' That will be a difficult thing.

To add to what Mr. Bédard has said, would you not agree that the principle mandate and raison d'être of this new board is to ensure that we do not get back into a situation where the Government of Canada — of whatever stripe — can pick the pockets of Canadians? Maybe they can do it somewhere else, but they cannot do it through the EI system. Does that not remain the main reason?

The Chair: Does the term ``pick the pockets of Canadians'' cause you any problem? You could perhaps have used another term to elicit a response.

Senator Stratton: Yes, and you guys are straight up.

Mr. Bédard: If this system were in existence in 1986 there would not have been this accumulation of a large surplus of $56 billion. Mind you, premium rates would have varied all over the place quite erratically.

Concerning the segregated fund and this $2 billion, there is no cost to the government for any of this because the accounts of the new entity will be entirely consolidated. There is still a risk that some governments might be tempted to intervene in the affairs of even the new entity, because it is not yet fully segregated.

Senator Di Nino: I will give you that without any argument, but there are arguments to that point as well.

Mr. Whyte: I agree with you, but the first step was to shut off the tap. That is what we have done. That is why we support the board.

Senator Stratton: Amen.

Mr. Whyte: Second, we have heard for a while that it is a notional account. They are basically saying, ``Trust us. We will collect the money for you and it will be there for a rainy day''; and now it is no longer there. ``Gee, it is gone, that is life; let us move on.''

We do not think that is appropriate. That is the message. All of a sudden a number was picked out of the air — $2 billion. Collectively we are saying we are not sure that $2 billion is enough. If there is a downturn, we and our employees should not be carrying the freight. The government should pick some of this up. Maybe $2 billion will be enough — we do not know — but that is one of the points. We do not want to go into deficit to refinance the money, but someone must be responsible.

We are hearing now that with this new entity we are on the hook to start up a new surplus or pay higher premiums if it falls short. That is not appropriate.

Senator Di Nino: I hear your comment.

Mr. Weir: I would like to address this issue of whether or not the $54-billion surplus actually exists. That is an important point. All of us recognize that Jim Flaherty does not have $54 billion in cash under his mattress or something.

Senator Di Nino: We do not think so, anyway.

Senator Cowan: Thank God for that.

Mr. Weir: However, we are saying that in accounting terms it must be recognized — and it was recognized in the government's books until recently — that that amount of money exists in the Employment Insurance account and has accrued interest.

As to where you get that money back from, Mr. Stewart-Patterson made one point, which is that you could allocate surplus dollars to rebuilding the Employment Insurance account over time rather than repaying the government's general debt.

As I mentioned in my presentation, this government's tax cuts will cost more than $40 billion per year when fully implemented. If the government wants to forgo or slow some of those tax cuts, it would be easy to get back the $54 billion; it is a question of priorities and budgetary choices.

Senator Di Nino: I would imagine that most Canadians would disagree with that point. I am enjoying this, but I may be overstepping my time. I have a few other points.

The Chair: I have Senator Ringuette on the second round. May I place you there as well?

Senator Di Nino: Absolutely.

Senator Nancy Ruth: It is wonderful to hear all of you after the Finance Committee witnesses this morning.

This is a mixture of some of my thinking. Mr. Bédard would like to broaden the scope of the board so that it has more power to do a variety of things. Mr. Weir, from the United Steelworkers, used phrases like ``it could result in,'' not that it would, and I am adding that it could rule out improvements such as the lowering of the number of hours required for employees to get EI, or even lowering them enough so that part-time workers could access EI.

The impression I got this morning from the officials from the Department of Finance is that perhaps there is some advantage in limiting the board's scope to set the rates. The decisions to lower hours needed to apply to EI is a political decision and should not be left to the board to do. I want to hear what you think about that, given your other comments.

Mr. Weir: I agree with you that it is a political decision, and it should be; employment insurance is a public program. One concern we have about this board is that it creates another level of bureaucracy between the minister we think should be responsible and the program being administered. We do agree with its being a separate fund, but we are not really sure that the program should be run by this board.

The issue is not so much that we think the board should have the authority to improve benefits as that we think the money needs to be in the program to finance those benefit improvements. Therefore, putting $2 billion in rather than $54 billion is what is limiting the benefits and not so much the scope of the board's powers.

Mr. Bédard: I totally concur. This is a political decision, of course, to improve benefits.

Our point is that if premium rates are not backed up by reserve funds and there is the risk that at recessionary times premiums would have to increase, there is also the risk that benefits will then be cut. That has certainly happened in the past, in the early 1990s.

The point of having stable financing is to protect not only the premium contributors but also those who receive benefits, which is why the program was designed.

Senator Nancy Ruth: A general understanding that a government has a moral obligation to those who are starving does not carry much weight in terms of straight number crunching. Is that what you mean?

Mr. Bédard: Those are the political decisions; what can I say?

The Chair: We have about 10 minutes left and I have two names on my list for second round. Please keep your questions succinct and to the point so that we can get them all in.

Senator Ringuette: First, I have a general comment. No matter what financial institution you talk to, they say that on an individual income base one should have at least six months' provisions set aside in the event of unforeseen situations.

If you look at the current benefits on a yearly basis, they are between $16 billion and $18 billion. I would expect that the financial experts of Canada would not deter from that six-month base premise in order to survive bad times. Am I wrong, Mr. Bédard?

We should be looking at anything between $8 billion and $9 billion in reserve for bad times. Never mind the fluctuation in benefits and never mind the fluctuation in the current state of the program. We should be looking at least that.

I have a question for Ms. Reynolds, who came in after I had completed my questions. In the restaurant and food industry, how many employees are there?

Ms. Reynolds: Just over 1 million.

Senator Ringuette: How many of them would be characterized as part-time, working fewer than 20 hours a week?

Ms. Reynolds: I cannot give you an exact number, but I can tell you that in the industry 44 per cent of the employees are between the ages of 15 and 24. Obviously not all of those people would be part time, working 20 hours a week. I cannot say for sure. A guesstimate would be 30 per cent.

Senator Ringuette: That would be akin to the retail industry in Canada, approximately 30 per cent of people working fewer than 20 hours.

Before 1996-97, is it correct that your industry did not pay one penny of EI for 30 per cent of the human resources used in your industry?

Ms. Reynolds: Those employees did not collect. Let us look at this in another way.

Senator Ringuette: What would be the reality?

Ms. Reynolds: Now many of these employees are paying into the program and are paying a much higher percentage of their wages into the program than everyone else. There is a very regressive tax. They have been paying all this money into the program disproportionately and that money has been going toward other tax cuts and for other programs. It has been extremely unfair to lower-waged employees that they have had to help build up this $54-billion surplus.

It has been unfair to the employers as well. From our perspective, fewer jobs were available to them because payroll taxes have such a negative impact on labour-intensive employers. They lost out in terms of having to pay more, but they also lost out in terms of fewer hours and fewer job opportunities because of the high cost of EI.

Senator Ringuette: Basically, I do not agree with that premise, which as I said earlier dates from the Canadian economic era of the 1950s. For instance, if I am a restaurant owner and I have reservations for 30 people for an evening, I will ensure that I can supply a decent human resource to provide service for those 30 people, never mind what I will pay into EI and what they will pay in EI, but that is another issue.

Ms. Reynolds: It was 15 hours in the old rules, by the way, not 20 hours.

Senator Ringuette: Yes, 15 hours that a person would be working. A person could work 15 hours at one restaurant and then move on to another restaurant and another, maybe doing three or four restaurants in one year without having any kind of benefits.

Ms. Reynolds: Most of them are students.

Senator Ringuette: I am not saying that the current system is perfect; it is far from that. However, at least the current system protects the people who were most vulnerable from certain employers.

Senator Di Nino: I will change channels a bit, if I can. This is really driven by the presentation by Mr. Whyte. I know we have not been talking about this, but part of Bill C-50, with some disagreements, is changes to the Immigration Act. I was struck by page 17 of your deck, where your search through your members gives a clear picture of the kind of thing we believe these changes will achieve.

Your survey indicates that about two thirds of your members say that it will be more difficult to find employees in the future. I do not know whether you have had an opportunity to look at the proposed changes to the immigration legislation, which is an attempt to be responsive to both the needs of the new immigrants who wish to come to this country and the needs of Canada. We think it will help to make this situation a bit better for your members and for everyone else's employees across this country. Would you be prepared to make a comment on that?

The Chair: Senator Di Nino, as I mentioned at the beginning of this session, each of these witnesses has been invited here specifically with respect to employment insurance.

Senator Di Nino: I understand.

The Chair: If someone feels competent to answer another question, though not having been given any notice to prepare for that, we are quite prepared to allow it.

Senator Di Nino: It was presented by Mr. Whyte; otherwise I would not have raised it.

The Chair: I understand. Since this is the last question, we can allow some leeway.

Senator Di Nino: Thank you, Mr. Chair. You are a fine gentlemen.

Mr. Whyte: We presented on the immigration portion of Bill C-50 as well. We did a major immigration report and we found that the immigration policy does not match the employment requirements of our sector. They are looking more for tradespeople and not for the professions. There is a real mismatch. Many of our policy suggestions have been adopted by this government and by the previous government because we want to facilitate getting people in to work in those jobs — for example, by extending temporary workers from one year to two years. We have therefore been strong proponents of fixing the immigration system.

As for this bill and how it was put in there, we do not know whether that is the best process, but we do know that something needed to be done. If you can speed up the queue and speed up getting the people that we all need into Canada, it is important. That is why not just in the context of immigration but also in the context of EI policy, we need to do the same thing.

Whatever we can do to facilitate dealing with the shortage of qualified labour is important. It should be a wonderful opportunity for everyone. We should deal with systemic unemployment and help those people who truly have the need. At the same time, we should facilitate the opportunity that is out there through immigration policy, EI policy, education and training, apprenticeship programs, student programs, anything we can do. We need a strategy. It is a wonderful opportunity for people.

I do not know that I am answering your full question, but yes, immigration is a major key to this area.

Ms. Reynolds: I wish to comment on Part 6 of Bill C-50. We are also pleased to see the emphasis on overhauling the immigration system. We look at the shortages that are anticipated in our industry as a result of the demographics. We need some bold changes; there is no question about that.

I want to be on record as being concerned that you are looking only at skills and not necessarily at categories C and D. If it included C and D, then we would be very much into port.

Senator Stratton: What are C and D?

Ms. Reynolds: Those are lower-skilled occupations.

Mr. Weir: I question the assumption that there is a labour shortage in Canada. We have talked about the fact that there are 1.1 million workers officially recognized as being unemployed. There are many more workers who are underemployed or who are stuck in low-wage and low-productivity positions. Part of the solution to this perceived labour shortage would simply be for employers to offer higher wages to attract more workers. That certainly is a solution we would like to see.

On immigration, I suppose our biggest concern would be the Temporary Foreign Worker Program, under which, currently, more people are being brought into Alberta and B.C. than are coming in through the regular immigration program. People who come in under the Temporary Foreign Worker Program are effectively indentured to the particular employers who sponsor them, and they have few rights and little in the way of legal protections and are vulnerable to being exploited. We would rather see people come to Canada through the regular immigration system with a path to citizenship rather than as temporary foreign workers.

The Chair: I know a number of you would like to get at this issue of immigration. Perhaps you would like to come back when we are dealing with that next week. We have another question on the issue before us today, Employment Insurance.

Senator Murray: Going forward, I see there will still be a fair surplus in the fund according to the government's own projections. This year they will be taking in $16.5 billion in revenues and spending $15.2 billion; next year they will be taking in $17.3 billion and spending $15.8 billion.

I am old enough to remember, as are Mr. Stewart-Patterson and others, the euphemistic discussions we used to have about passive and active measures for employment insurance and so forth.

My question is whether you are all of the view expressed by the Canadian Federation of Independent Business and others that the fund should be used only for what we would normally call ``regular benefits,'' and that these other special benefits, for example training programs, should come out of general revenue. If we adopted that policy, it would have profound implications.

Mr. Whyte: We are not advocating moving those things out of the fund now. They are in there now. We advocate that we not continue to have non-EI programs accumulate in the EI fund.

Senator Murray: These are all right; are they?

Mr. Whyte: They are there now. How do we take them out? For example, our members support parental leave. How would we take it out? Let us focus the $2 billion for training on helping people get employment rather than just having a training program.

The Chair: Mr. Whyte, you asked how do you take them out, and I remember a prime minister being asked a question like that, and he said, ``Just watch me.''


Mr. Céré: Take for example Quebec, which has been undergoing a particular experience for several years now. The provincial government repatriated active employment measures from the federal government in 1998. In 2006, the Quebec government established a parental insurance program. Everything related to federal special benefits, particularly active employment measures, as well as maternity and parental benefits, et cetera, were repatriated to Quebec. What resulted was a better-quality parental insurance program for Quebec, that better protects families and sets its own contribution levels. There was a transfer of jurisdiction from the federal government to the provincial government.

I would like to come back to the subject of the $54 billion surplus. I wish to draw your attention to section 131, section 80, on page 121 of the bill. There has been a long-standing provision stipulating that if the employment insurance account is in deficit, the Consolidated Revenue Fund will lend the account money. And this did in fact happen in the history of employment insurance, at the beginning of the 1990s, when, because of a recession, the employment insurance account was in deficit. The Treasury loaned money to the employment insurance account. The employment insurance account remained indebted to the Treasury, and reimbursed the debt with interest.

What applies to one side must apply to the other. In other words, should the $54.1 billion not be considered as a debt owed to workers and Canadians and be progressively restored to the employment insurance system? We could discuss the modalities and come up with consensual formulas.


Mr. Weir: We would not want to reduce either regular benefits or active measures. We would advocate stronger training programs being financed through Employment Insurance, but I would second what Mr. Céré said, that these active measures are small and not especially costly in relation to the $54-billion surplus that has been built up over the past decade and a half between premiums and benefits. We think what needs to happen is an amelioration of benefits based on that surplus.

The Chair: Last word on this issue, Ms. Reynolds.

Ms. Reynolds: I would like to say — and I missed the earlier comments — that we are suffering from a labour shortage in skilled, unskilled and semi-skilled workers. We would like to ensure that the programs that are in place have outcome-based results. We see a need to make sure they work. That is our main consideration there.

I would love to comment on the $54-billion surplus as well.

Senator Murray: It is $56 billion.

Ms. Reynolds: The comment was made earlier that it does not exist, that it is gone, and we recognize that. However, we also recognize the issue about whether the $2 billion in the reserve fund is adequate. If there is a need to increase premiums, you can still expect a revolt from employers. There is no way that employers and employees will put up with premium increases after having over-contributed for that many years. Our industry in particular is impacted by payroll taxes, and we will be the first ones banging on government's door if government tries to raise premiums during a prolonged recession. I wanted to go on record as saying that.

The Chair: Thank you, Ms. Reynolds. That will end this particular session.

We are studying Bill C-50 and its many ramifications. Those of you interested in attending on the issue of immigration and how the changes affect the employment situation, you are welcome to let our clerk know when we adjourn so that we can incorporate your ideas into our hearings. We will be dealing with that on Tuesday afternoon next week; that is our current plan.

Thank you all, and we very much appreciate your attendance here. You have made interesting suggestions for us and have helped us get our minds around the possible and sometimes unforeseen and unintended consequences of making major, significant changes to legislation that have an impact on Canadians.

I wish to inform our next panel that this bill is still in the House of Commons. However, being senators who want to get on with the work, we asked if we could study the subject matter prior to receiving the bill.

As our final panel this afternoon, we will be hearing from a number of witnesses who will be able to help us on some of the issues we have heard about from government officials. We have with us, from the Canadian Federation of Students, Ms. Amanda Aziz, National Chairperson, and Mr. Ian Boyko, Government Relations Coordinator; from the Gairdner Foundation, Mr. John Dirks, President; from the Canadian Alliance of Student Associations, Mr. Zach Churchill, National Director, and Ms. Lisa Fry, Policy and Research Officer; and, from the University of British Columbia, Professor Ron Giammarino.

We will call on Mr. Dirks of the Gairdner Foundation to begin, as he has an airplane to catch later this afternoon.

John Dirks, President, Gairdner Foundation: This is a good news science story. For 48 years, the Gairdner Foundation, founded in Oakville, Ontario, has recognized 293 scientists from 13 countries. The selection process is such that 70 have later on gone on to win the Nobel Prize in medicine or in chemistry. In the last six years, of the 14 people who have received the Nobel Prize in Medicine, 11 had first received the Gairdner Award.

Forty-two Canadians have won the Gairdner International Awards, including Dr. Sam Weiss from Calgary and Dr. Nahum Sonenberg from Montreal. A famous Nobel Laureate said of the Gairdner Awards that the awards have moved to a position of prestige and importance at an international level, identifying creative scientists early. It is seen as Canada's international prize of stature.

On February 26, the Minister of Finance announced an allocation of $20 million to endow the Gairdner Awards. Beginning in 2009, the awards will be renamed the Canada Gairdner International Awards. An agreement has subsequently been signed between the Gairdner Foundation and the Canadian Institutes of Health Research, CIHR, on behalf of the ministry of health.

The allocation has two purposes. One is to maintain the value of the awards on a world scale to $100,000 each. They have fallen behind other respected international awards, such as our American competitor, the Lasker Foundation. The Gairdner Awards were last established at a value of $30,000 in 1984, which is exactly the inflationary equivalent today of $100,000.

The second purpose was to establish an individual award for global health. This prize will be called the Canada Gairdner Global Health Award, and it fits in with the platform Canada has in international health. The award will be directed at international scientists for discoveries and advances in preventing and treating diseases of the developing world, such as tuberculosis, malaria, and aspects of the population health system and environmental health in various countries.

It is clear now that the Gairdner Awards are globally recognized because our process of selecting winners has been viewed as being totally arm's-length and independent and has therefore been greatly respected.

The discoveries of the Gairdner recipients have made a huge impact on the health care system and the economy. You can trace a number of important health initiatives to them. For example, those who eradicated smallpox were honoured by the Gairdner Foundation many years ago. Those who developed a treatment for Rh negative women whose babies were born with life-threatening anemia were honoured by Gairdner early in the 1960s. Those who created the foundations of the biotechnology industry have been so honoured. Those who are responsible for the imaging developments, such as MRI and CT scans, have been so honoured. We all can realize that both in Canada and internationally this led to the spinoff of many excellent economic enterprises.

The Gairdner Awards have helped further by developing a science culture in Canada. Gairdner winners do not merely come to receive a monetary prize. Each year's winners give a week of their time and visit 16 to 18 academic centres from Vancouver to St. John's, Newfoundland. They speak to high school students, faculty and graduate students and they might speak to the public. Of all the awards given, including the Nobel Prize, none has this wide, national context for a prize.

We are pleased that with the global health award we may have a new opportunity here in Ottawa. We give our prizes every year in Toronto, bringing people from all parts to be at the occasion of these international awards. We foresee a possibility within one or two years of having such an event for global health here in Ottawa and inviting the diplomatic corps, the World Health Organization, the World Bank, the Bill & Melinda Gates Foundation — leaders in this field — to set a stage on a platform for Canada in this field, increasing our position and our recognition.

In short, we believe that the Gairdner Foundation has contributed greatly to Canada, and this will ensure that these prizes and their independence are there for the next generations.

Next year, we will celebrate our fiftieth anniversary with major events in eight Canadian cities. We will continue to enhance the science culture and literacy of Canada, one of the goals of the government. We know that we will contribute to the Knowledge Advantage strategy of science and technology and, indeed, the four priorities that they have.

We are in a particularly good position to develop international linkages with the people involved in the biological and health sciences. We know them, we can invite them, and they come and contribute. They are on our advisory groups and on our boards and reviewing committees. They contribute greatly to our country. This has given Canada a benchmark of success in the international scientific community as a country that can identify the best and set a benchmark for its own scientists at the highest levels of excellence.

The Chair: Thank you very much for your presentation, Mr. Dirks, and we thank you and congratulate the foundation for the good work it is doing.

Amanda Aziz, National Chairperson, Canadian Federation of Students: I want to thank the committee for the opportunity to speak about an important piece of legislation. The Canadian Federation of Students is Canada's largest student organization. We represent undergraduate and graduate students at Canada's public colleges and universities, both large and small, and we unite over half a million students on campaigns for affordable, high quality post- secondary education.

One of our longest-standing campaigns is for a system of national grants. The upfront barriers faced by students pursuing a post-secondary education play a major role in explaining the unacceptable participation gap between families in the lowest and highest income quartiles. Grants are vital tools for giving students and their families the help they need to afford post-secondary education in the face of skyrocketing tuition fees and other costs across the country.

More importantly, however, grants, unlike loans, provide that help without mortgaging the future of Canada's young, educated workforce. Student debt owed to the federal government through the Canada Student Loans Program is increasing at $18 per second, or more than $1.5 million per day. In July this year, student loans owing to the federal government will surpass $13 billion. That does not include student loan debt owed to provincial governments, which could add at least $7 billion to the total; nor does it include private debt, which students are turning to more and more.

In provinces where tuition fees are the highest, average student debt is more than $28,000, according to the Maritime Provinces Higher Education Commission. From our perspective, this is an embarrassment for a country as rich as Canada.

Ten years ago, the federal government created the Canada Millennium Scholarship Foundation and endowed it with $2.5 billion. The size and scope of this investment should be recognized as a substantial and well-meaning attempt at reducing student debt and improving access to post-secondary education. Sadly, however, the foundation was a flawed mechanism for social programming and, by most accounts, failed to deliver much relief to Canadian students. Provincial governments widely abused the funding from the Canada Millennium Scholarship Foundation, seeing it as slush fund for their own experiments or priorities. As an arm's-length and private foundation, the foundation was not accountable or transparent in the same way as a government program. It provided political cover for increased tuition fees, enriching former employees with lucrative contracts that paid out nearly $250,000 in subsidies to organizations that supported its renewal.

However, Budget 2008 announced a new direction for providing aid to Canada's families, after expert advice and compelling evidence. The proposed Canada student grants program will avoid many of the pitfalls of its predecessor, the Canada Millennium Scholarship Foundation, and will serve as a predictable and stable funding source for Canada's students.

Students need non-repayable assistance, and that is not the issue. As the government has recognized, the issue is how grants are administered at the federal level, and from our perspective, the record is clear: the Canada Millennium Scholarship Foundation failed in doing so, and there is a more effective way.

In the coming months, we look toward to writing feedback about this new grant that was announced in the federal budget. In the meantime, we are encouraging all parties, and in time, the Senate, to implement budget legislation to wind down the Canada Millennium Scholarship Foundation, as found in Bill C-50. I assure you that with an HRSDC- administered program in its place, students will not miss it.

The foundation did a lot of important research in the greater post-secondary education sector. We are recommending that the Senate, and obviously all parties, investigate and ensure that research continues on the new grants program and on post-secondary education but that it be administered through the Department of Human Resources and Social Development Canada rather than through a private, arm's-length foundation.

In conclusion, I want to talk about something that the bill does not specifically address but that should be among your top priorities when debating post-secondary education policy, namely, the need for this government to invest in education for Aboriginal people across Canada.

The gap that exists between low- and high-income Canadians participating in post-secondary education is even more pronounced between Aboriginal and non-Aboriginal Canadians. While this gap continues to widen, the population growth of Aboriginal people is skyrocketing. Despite these demographics, funding has neither kept pace nor increased substantially since the mid-1990s, when a 2 per cent annual increase cap was placed on Indian and Northern Affairs Canada's post-secondary education program. The Assembly of First Nations estimates that more than 13,000 eligible students in the last six years alone have been denied funding to participate in post-secondary studies. Budget 2008 delivered no new funding for Aboriginal learners and continues this cap on the post-secondary program run through INAC.

Today on Parliament Hill, and across Canada, a national day of action was called by the Assembly of First Nations and Aboriginal communities across the country, calling on the federal government to take action in support of Aboriginal people, including an investment in education for Aboriginal students. We recommend that the funding cap be lifted from the post-secondary education program and that the Senate use whatever power it has to increase the standard of living for Aboriginal people across Canada.

I want to thank the committee for the opportunity to speak today. There are a number of issues in the bill that I did not have time to address, but I look forward to your questions.

The Chair: You may have an opportunity to work those points in when the questions start flowing.

In the meantime, I call upon Mr. Churchill and Ms. Fry, from the Canadian Alliance of Student Associations. Perhaps you could explain your organization to us. Who will begin, Mr. Churchill?

Zach Churchill, National Director, Canadian Alliance of Student Associations: We will both speak.

Thank you for the opportunity to speak to you today. The Canadian Alliance of Student Associations, CASA, is an alliance of soon-to-be 23 student associations from across the country, representing approximately 300,000 students at the post-secondary level from the graduate and undergraduate levels.

CASA is optimistic about the recent budget announcements pertaining to post-secondary education and is excited about the opportunity to work with the government in developing the new Canada student grant program. However, we have questions and concerns about the new program and its implementation. With the dissolution of the Canada Millennium Scholarship Foundation and the introduction of the new Canada student grant program, many significant changes to the landscape of student aid will be taking place that we need to be conscious of moving forward.

Where the foundation's bursaries were given out primarily based on the criteria of need — that is, the level of debt — this new program will be paced on the level of income of a given student and his or her family. While CASA supports this kind of target assistance for low-income students, a group of students currently under-represented in our system, it is important to note that this is a fundamental shift in the way the grants have been distributed in the country. Instead of a needs-based system, we will have an income-based system. While this may support accessibility to post-secondary education by low-income students, it will not deter the accruement of debt, which will have a negative impact on persistence and completion rates. CASA believes that needs-based grants are important for completion and the ability of students to contribute meaningfully to the Canadian economy upon graduation.

Although this was not mentioned in the budget, the document states that Bill C-50 would allow for the establishment and operation of additional grant programs for qualifying students whose financial needs are greater than the maximum amount of financial assistance that may be given to a student.

Currently, we do have the Canada Study Grant, which goes to part-time students with high financial need, but this text talks about the establishment of additional grant programs. Is the study grant to be expanded, or is there to be a new grant for students with high financial need? That was not explicitly mentioned before. We would like to learn about that.

CASA is also seeking clarification regarding subclause 108(3), which provides ``for the establishment and operation of grant programs'' and ``for the circumstances in which all or part of a grant is to be repaid or converted into a loan.'' We are concerned that there are conditions under which a grant is to be repaid or converted into a loan. We seek clarification on what these conditions are and how this would support accessibility and affordability to post-secondary education in the country.

Lisa Fry, Policy and Research Officer, Canadian Alliance of Student Associations: With regard to accessibility, looking forward to the new income-based grant program, it is important to note that income is not the only barrier to access and completion.

The budget stated that the design of the new Canada student grant program is aimed at increasing post-secondary graduation and completion rates, particularly for under-represented groups. However, targeting funding only to low- income students will not necessarily help other under-represented groups, such as Aboriginal students and rural students, obtain post-secondary education. These groups may face other physical, social and cultural barriers that can impede access.

As Ms. Aziz said before, another important function that the foundation performed was research. Because of the work of the foundation, Canada has become a global knowledge leader on issues pertaining to access. However, the budget did not give the Canada Student Loans Program a mandate or funds to engage in a research program or to appoint a third party to continue this research program. Currently, there is a knowledge gap when understanding holistically the issues affecting access in Canada, and the Canada Millennium Scholarship Foundation has done quite a bit to fill that gap. Moving forward, we hope that research at the national level will be continued because it is integral to ensuring that students are receiving aid in a way that is truly helping them.

With this change, it is also important to keep track of how the new disbursement system is affecting students on the ground in provinces. With the transition from the millennium fund to a new system, many provincial programs that are currently helping students will be affected. While the federal government does not need to be involved in the operational affairs of provinces, we are concerned that there may be potential displacement of provincial funds and ask what mechanisms will be established to ensure that the phasing out of the Canada Millennium Scholarship Foundation does not mean that holes will be left in the student financial aid system. This question also relates to transition grants and to what extent the provinces will be involved in their delivery.

Students benefited from the flexibility the foundation had in distributing its funds. Programs were tailored in partnership with provinces across the country in order to support students based on their unique regional or demographic needs. Moving forward, it is important that a federal program is able to be adaptive and flexible so that students receive support in the way that best suits their needs.

Mr. Churchill: In summary, we are encouraged by the government's commitment to students and are anxious to support the government developing this new program. However, we would like to see some changes in the proposal.

To recap, those include the addition of a needs-based component to support students incurring large amounts of debt; the addition of targeted funding and outreach programs for students from other under-represented groups in our system, such as Aboriginal and rural students; the development of a government-funded, third-party research institution to continue Canada's great work on researching and understanding barriers to the accessibility and the affordability of post-secondary education; and the assurance that the new program will be responsive to the diversity of student needs across the country. Those are our recommendations for you.

The Chair: I appreciate your comments and I thank you for giving us your summary of the specific recommendations. That will help us focus for our questions.

Ron Giammarino, Professor, University of British Columbia: I will stay with the student theme. I present myself to you as a student of finance, having started my studies some 30 years ago at St. Francis Xavier University and continuing on through Queen's University, twice, starting in macroeconomics and then ending up mostly in corporate finance. I have been at UBC now for 25 years.

I was asked to come here and comment on the change to the Bank of Canada Act and to answer questions that might arise about that. I have considered the change, and I see it as the inevitable response to a change in the body of knowledge. Having been a student of finance for so long has given me an opportunity to see the massive rate of change that has taken place in finance knowledge and in financial markets.

It is quite interesting for an academic to be able to see a real world component of this knowledge base unfold as it has so rapidly. As we have seen with any body of knowledge, it creates problems and challenges going forward. I see this amendment of the act as a response by the Bank of Canada to the new environment it faces. Essentially, the amendment relaxes some of the constraints under which the bank currently operates. From what I can tell, it is responding to the fact that the environment has changed accordingly.

The Chair: Thank you. We will now go to discussion on your presentations. In particular, our focus is on Bill C-50. I would ask senators to keep that in mind when they are posing their questions.

Senator Cowan: Thank you for being here this afternoon and for your presentations. I had two questions, one of which Ms. Fry dealt with when she was talking about research and the concern that the research done by the foundation seems to have fallen off the table. Obviously we need to watch that to ensure that the good work in that area is continued and expanded upon.

The other area is an issue that you all touched on regarding the refocusing of the program on income-based rather than needs-based. The hope and the intent of the program is that this will enhance and encourage under-represented segments of our population to enter and stay in post-secondary education. This is not a new concept; it has been tried elsewhere.

Are you aware of any evidence that indicates that it will have that effect?

Ms. Aziz: Are you asking specifically about providing assistance to low-income people?

Senator Cowan: I believe all of us would share the view that we want to do all we can to encourage people to go to university and to stay in university and to break down the barriers that keep people out of the system.

The reason for my question is that what I have read indicates that this will not have that effect and that it will not have as profound an effect as the government perhaps hopes it will and that you need to have a combination of needs- based and income-based. Simply to focus on income will not produce the results that all of us wish to have.

Ms. Aziz: I am glad you asked that question. The Canadian Federation of Students has long campaigned for a system of needs-based grants, although we are still pleased to see this announcement of a grants program in HRSDC.

There are a couple of issues here. You have nailed it right on the head that this issue is quite complex and that just providing financial assistance to low-income people will not cut it. A number of different initiatives and programs must happen in order to get the great impact that the federal government is hoping to get in terms of encouraging people who do not often participate or pursue a post-secondary education to do so.

In our research documents, we have pointed to research regarding why young people do not pursue post-secondary education. Overwhelmingly, finances are the top reason young people give for why they did not pursue a post- secondary education. Having the finances available to them is an issue. However, as you have said, although we are excited to see how this will roll out and we are happy to work with the government to ensure that the greatest number of students are able to benefit from it, there is a combination of need and income that needs to be considered when providing assistance to students across Canada.

Although this grant is income-based, there is a need factor in it that is assessed when a student applies for Canada student loans. There has to be some need in order for you to qualify for this grant. Certainly, more work has to be done to ensure that it will have the desired effect.

Mr. Churchill: It is important that we have upfront, targeted assistance directed towards students who are under- represented in the system. That is an important part of a holistic and comprehensive student financial aid system. However, as Ms. Aziz said, there needs to be another component that helps out the other students who do not qualify under this criteria and who are accruing large sums of debt upon graduation — and maybe they will not even graduate, because debt affects persistence and completion rates when pursuing higher education. We need components of both, not only income-based but also targeted assistance for under-represented groups. Right now we are missing assistance and early outreach programs for Aboriginal and rural students. We also require this needs-based program as well.

Providing this financial assistance cannot be the only step we take. We need an understanding of access and how to reach out to a wider array of students to get more people into the system. When the foundation started their low- income bursaries in Nova Scotia, they put this money towards low-income funding but were not receiving enough applicants. We learned that if you want to increase access, you need to reach out to Aboriginal, rural and low-income communities. It is about breaking down the cultural, physical or family barriers.

Senator Cowan: Do you mean their non-financial barriers?

Mr. Churchill: Yes. People have to know about these opportunities. It is not just about money; it is about breaking down these other cultural, family and physical barriers as well.

Senator Cowan: Am I correct that in order to qualify for this assistance you must have a loan in order to get a grant? Is that correct?

Ms. Aziz: Yes. Currently, your need or your eligibility is assessed in the Canada Student Loans Program.

Ms. Fry: One of our concerns is access, and this builds on what Mr. Churchill said. We are concerned that if we do not talk about early outreach and other barriers, the students who need the help will not get into the system anyway because, as was just stated, the decisions to enter a post-secondary program and to apply for a student loan must first be made, which can be daunting for many students. If those decisions have not been made, this money, which is targeted to provide access to low-income students, will not apply.

Mr. Churchill: We must keep track of that moving forward. Because there is a need to qualify for student loans, we could be getting the same pool of people with different criteria into the system to receive the grant. I do not think anyone knows the answer to that.

Ms. Aziz: It is important to recognize, however, that 50 per cent of students who are currently pursuing a post- secondary education do carry a student loan. Although I do not disagree that more work needs to be done on the financing end, from our perspective it is important to remember also the other end, in terms of controlling the costs of an education.

As I said, 50 per cent of students are carrying a student loan. This grant will help students currently in the system and hopefully will provide some assistance to those planning to pursue an education who just need some amount of financial assistance to help them get there.

Senator Murray: Mr. Churchill, with regard to the needs-based component that you would add to this program, have you designed such a component? How would it work? Do you intend that it be paid at the present reference level or are you asking that more money be added to the program?

Mr. Churchill: We already have an assessment for needs-based. It is the amount of debt students accrue with the amount of income they have. Those mechanisms are already in place to assess debt. We are asking, in this current program moving forward, whether it is with the same amount of money or with more money, which would be great, it is still important to tackle this problem of debt along with the issue of supporting access initiatives. It is important to tie the mechanisms that were in place, for example, with the millennium foundation, when they were supporting students in high need in that program as well.

Senator Murray: Do you understand why the government did not do that with the present program?

Mr. Churchill: Perhaps they had a different focus — a focus more on low-income students. I believe they feel this is more for access and not bringing down the level of debt students have. They are also working on a repayment program in the background to help students manage their debt load when they finish their education program.

Senator Murray: Would your answer to the question of whether this is an improvement over the millennium scholarship program be yes, but you want some changes made, or would it be yes and no?

Mr. Churchill: We are happy moving forward and working with the government on this program. We do think there are some holes in the way the program is currently set up.

Senator Murray: Do you think these holes would need to be fixed by amending the legislation, or is it simply a matter of program design?

Mr. Churchill: I believe it is program design.

Ms. Aziz: We are fortunate to sit on the National Advisory Group on Student Financial Assistance. Part of the concern with need versus income is that you can have students with high needs because of the program they are pursuing.

For example, in Nova Scotia the need is often higher because the cost of education is higher as a result of higher tuition fees. In other provinces, your need might be lower. That is the case with many professional programs across the country.

As Mr. Churchill was saying, we also support needs-based assistance. Quebec has an interesting model when considering financial assistance that is needs-based. A debt ceiling is placed on the amount of debt a student can incur to avoid having to pay a huge amount of assistance to a student who is pursuing a more expensive program but has higher income.

Senator Stratton: Thank you for coming today. It is good to hear young people and their concerns.

I do not have a question, but I want to refer you to the testimony given this morning by some of the government officials, in particular Ms. Rosaline Frith, the Director General of the Canada Student Loans Program. She gave a comprehensive overview of this new program — hopefully some of you were here to listen to that — and of the problems with the millennium fund. If you have not read that, I encourage you to do so.

This is a start to try to improve the situation, in particular for the kids who do not necessarily want to go to university but to colleges to take trades. There is a desperate shortage of trades. We need to applaud those efforts.

I was in Thompson, Manitoba, a couple of weekends ago when we announced a training program at the Inco mine through the Western Economic Diversification Canada program. It is specifically designed to train Aboriginal youth to work in the mine — that is, to learn the trade of mining so that they do not have to leave where they live. They can get training and actually work and live in the region, which is important. If there is an economic benefit to be gained, it is to try to keep those kids there because that is where home is and where their roots are.

I would encourage you to push the government to do more of that type of thing. The problem, as I see it and as others see it, is that the Aboriginal kids are not finishing high school. That is a serious concern. Many attempts have been made to try to overcome that.

You might think about how to push for these programs where there are economic opportunities to help kids in areas where they can be helped. Of course, some locations on reserves are isolated and more difficult to address.

Senator Nancy Ruth was up in the diamond mine in the Arctic Circle. There are trained Aboriginal youth working in those mines and earning significant dollars. That needs to be pushed and encouraged as much as possible. I rely on you to do that.

The Chair: Was that a statement?

Senator Stratton: That is just a statement.

The Chair: I know that Mr. Dirks will be leaving shortly, if senators have questions for him.

Senator Di Nino: Obviously the Gairdner Foundation is an example of money well spent. The Canadian government is putting $20 million into this, so I would like to ask some questions on behalf of the public.

What sort of terms and conditions are associated with the $20 million? There must be some contractual obligation. Give us an idea of what it is we have entered into with the Gairdner organization.

Mr. Dirks: As part of the funding agreement that went back and forth in the month of March, there are a number of important obligations we must fulfil. A good thing is the ability of the foundation to keep its independence and its arm's-length adjudication process. Also, its ability to identify its governance has been preserved. That will serve us well in terms of the respect we have had internationally.

In the agreement there are clear delineations as to the frequency of reporting; there are specific guidelines about what we should report every year in terms of our plans and how the particular part of the $20 million was spent in terms of the income generated that year. That is carefully put down on a calendar. For example, our first report — assuming we will get the funding some time next month — is due September 30.

There is a regular series of obligations to report annually through CIHR. Alternatively, we have a chance to come back to government to give the state of the prizes and to ask ourselves whether the awards are being preserved at the level of quality and funding that we started off with in 2008. It is a bilateral set of obligations.

There are clear, prudent guidelines as to how the money can be invested. The basic principle is to preserve the capital, but with some leeway through bad years to dip into the endowment up to a level of 10 per cent. The whole issue of investment has been laid down. I understand that it is a fairly common approach to one-time allocations of this kind.

There are also clear indications about the quality of the people who should be on the investment committee, that they should be experienced in the investment business. We have identified such board members. There are a number of points relating to confidentiality and matters of that type.

We went through an extensive negotiation involving legal advice on behalf of CIHR, the Department of Finance, the Treasury Board and ourselves.

Senator Di Nino: You answered one of the questions I was going to ask. It is the earnings you are using as opposed to the endowment; is that correct?

Mr. Dirks: Yes, that is the principle.

Senator Di Nino: When you dip into it, do you have to replenish it at some point in the future?

Mr. Dirks: Yes. The allocation of $20 million preserves the prizes for the next generation. The additional challenge that arose then when these discussions took place with various departments is to match these funds so that we can conduct our national program presenting to various academic centres, students and the public as well as run our own internal operations. We are in the process of doing that.

We have also gone to one of the provinces. Just before their election was called in early March, the Government of Alberta gave us an intent for $2 million dedicated to supporting the kind of intellectual programs that we carry out in Alberta.

We are hoping to do the same with other provinces. We are in the process of doing that. We also want to go to the private sector. We are very pleased with this announcement and hope that it will receive final approval with the proposed budget implementation act. It does give us an additional challenge to enhance our own support from other sources.

Senator Di Nino: I am satisfied with this particular part of Bill C-50, Mr. Chair.

Mr. Dirks, if you have an annual report that includes audited financial statements, could you please supply it to clerk for distribution.

Senator Ringuette: I did not know you would be here this afternoon, Mr. Dirks. This morning I asked the officials from the department to provide a list of your board members. It would probably be quicker if I ask you to provide a list of your board members.

Because you provide awards internationally, do you have non-Canadian residents on your board?

Mr. Dirks: No. We used to have a family board of directors, and now we have moved to a public board. Four of the twelve directors are family and eight are from Vancouver, Edmonton, Calgary, Toronto, Winnipeg and Montreal. We can provide you with a list. We have had an opportunity, especially in this last year during this transition, to move to a broadly based board.

All the board directors and Canadians and all Canadian residents. However, on our adjudication committee, especially on the international side, it has served us well to have significant international scientists. This is not a board of directors but a committee with scientists. That has been a bonus in terms of the quality of our adjudication process, and it has also been beneficial in terms of the relationship between these international scientists and similar research operations in Canada. They become familiar with us; they like us; they give us of their time, and I think that has worked greatly to our advantage.

We hear from Industry Canada, this sounds to us like it is part of science culture — we can give chapter and verse, as it were — where leading people are from elsewhere, no Canadian scientist can participate in it.

Senator Ringuette: I noticed that you have no one from Atlantic Canada on your board. Is it a problem to identify Atlantic Canadians?

Mr. Dirks: We are working on it.

Senator Ringuette: Those are all the questions I have for this witness.

Senator Nancy Ruth: What relationship, if any, do you have with CIFAR, the Canadian Institute for Advanced Research?

Mr. Dirks: We know CIFAR quite well. I think they are complementary endeavours. CIFAR has multidisciplinary research networks that involve scientists from different parts of Canada, the United States and elsewhere. They choose a theme and work on that collectively, whereas we are in on the other side of it. We identify those who have made a major discovery or, over a lifetime, sustained research advance. We identify the stars, and having identified the stars, we then bring them to our institutions, so I would say our roles are complementary.

Senator Nancy Ruth: It is like a feeding ground?

Mr. Dirks: We are limited to the biological and health sciences, whereas CIFAR covers natural sciences and others. There was a suggestion made in some of our discussions that has not been taken any further. Is the Gairdner Foundation model in the health and life sciences one that is applicable to other aspects of science? We have not pursued that question further and have not been asked to, but it is something one might want to think about in future years.

Senator Nancy Ruth: Do you have any relationship with Massey College at the University of Toronto, other than the fact that you are located there?

Mr. Dirks: I am a fellow there. Massey College is a great institution with a good environment, as you know well. It is largely autonomous from the university in terms of bringing people in, especially the young graduate students we have been talking about.

The Chair: Mr. Dirks, I think a number of senators wonder about something. It seems a little out of the ordinary to see a significant grant to an independent foundation in a budget implementation bill. You know the history of previous governments creating foundations, and there has been a lot of debate in Parliament regarding the accountability of those foundations and trying to create a provision for the Auditor General to be able to go in and check the books and records of foundations where public money has gone in a significant amount to determine how that money has been used and whether it has been used properly.

In your funding agreement, in this granting agreement, is there any provision to allow the Auditor General to audit the books of the foundation?

Mr. Dirks: There is for the fund agreement alone. If there were other funds, those of course would not be included in the agreement.

The Chair: Thank you very much, Mr. Dirks. Again we congratulate you on the work the foundation is doing and wish you good luck and continued success.

Mr. Dirks: Thank you for listening to me.

Senator Di Nino: I particularly wanted to have an opportunity to put some questions to Mr. Giammarino.

You told us that you were asked to appear to talk about the changes in the Bank of Canada Act. I placed some questions on this issue with the officials this morning. I would love to have your opinion.

I was struck by the comment you made; I think, if I am not mistaken, you used the term ``relax the constraints'' that the governor is under in certain areas, particularly in the area dealing with this piece of legislation, buying and selling securities. There is no question what Bill C-50 will do if passed. It will provide a more flexible tool for the governor and the board, I am assuming, to deal with major market disruptions.

The questions I asked this morning dealt with a couple of areas. Do you have any concerns that this relaxation of the constraints, to use your words, and the sole authority in the hands of the governor is excessive authority?

Mr. Giammarino: That is a very good question and the natural one that comes up whenever we relax constraints of that sort. In policy thought, there is always a trade-off between rules and discretion. When we ask someone to watch over us as a society and guard us against some particular event, we always wrestle with the question of how much leeway do we give them because that can be incorrectly used or it could also affect behaviour. Those are the two things that we would be concerned about, that they might make mistakes or that just having the discretion would chain the behaviour of the capital market participants. In thinking about the changes, those are the concerns that I had as well.

While they are legitimate concerns, given the history of the Bank of Canada and its performance on an international setting, I am confident that those trade-offs will be managed. Moreover, there is a provision that, in the event it is a major stress on the capital markets, the governor has to publish a policy statement about how this is to be used. It cannot be absolute discretion; they cannot decide on a Tuesday that they will undertake some transactions. There has to be some accountability.

There is also a recognition by the Bank of Canada of the moral hazard problem. If participants know that the bank can intervene in a market that is in trouble, that raises the possibility that they will take actions that bring that on. That is one of the most standard problems we have in finance all the way from student loans to corporate loans to this sort of discretion. If we know that if we take big bets the Bank of Canada can bail us out, that can cause us to take the big bets. Heads we win; tails they lose.

We do not know how the future will unfold, but I am comfortable that they have the expertise, the motives and the track record to manage those things when we weigh that off against the costs of not doing anything, given that capital markets are rapidly moving to create new securities. As I said, with any body of knowledge, as you create those new securities or do new things, you create risks. Therefore, giving the Bank of Canada the ability to expand their intervention is appropriate and a risk worth taking.

Senator Di Nino: From what you have seen in the legislation, what role does the ministry play in the overseeing of these new powers?

Mr. Giammarino: I am not a lawyer, so I am not sure how tight these things would bind, but if I remember the wording, it is in the conduct of monetary policy and the provision of stability. There is an item in the Bank of Canada Act that allows the minister to issue a directive in the event that there is a dispute. Furthermore, there is recognition that there must be consultation at all times. I think that ultimately, as with monetary policy, the buck would stop with the minister.

Senator Di Nino: We were told that the Bank of England and the European Central Bank have similar types of powers bestowed on their governors. To your knowledge, are there other central banks, particularly in the Western world, that have given this kind of power to their governor?

Mr. Giammarino: I am not sure. I believe the Federal Reserve has broader powers than the central bank. For example, their current action was with respect to investment bankers who would not have been eligible under the Canadian legislation. That is a point on the positive side for the amendment; there will be a need to coordinate with other central bankers. As you point out, they are already exercising that kind of power.

Senator Di Nino: Finally, on the other side of the coin, you are right that whenever there is a major disruption it is global, never domestic. If it is domestic, it can be handled differently. We have a fraternity of governors who are in touch with each other all the time. As well, we have a board of governors at the Bank of Canada who would be involved in these discussions before any final decision on using that power would be made, I would think. Do you agree with that?

Mr. Giammarino: Are you asking whether the governors of the Bank of Canada would be involved in that?

Senator Di Nino: Members of the board of the Bank of Canada.

Mr. Giammarino: I do not know whether that is the case. I could not imagine that it is not, but I do not know whether the governor could take that action without informing the board.

Senator Di Nino: If you think of an angle that you have not told us about, I would appreciate your sending it to the clerk, and she will share it with us.

The Chair: Mr. Giammarino, I had delivered to you page 125 of Bill C-50. You have been talking about clause 146(1), which reads:

(g) for the purposes of conducting monetary policy or promoting the stability of the Canadian financial system,

It goes on to say that the Governor of the Bank of Canada may buy or sell from or to any person securities and other financial instruments, and then there is an exception: ``other than instruments that evidence an ownership interest or right in or to an entity.'' What is that exception that it cannot get involved with?

Mr. Giammarino: My understanding is that that exception is with respect to ownership positions in operating entities. As I mentioned at the outset, I do not carry every clause in my mind, but I believe that the Bank of Canada has restrictions on being involved in operating entities, taking equity positions in companies and having an influence, and that is what is being excepted.

The Chair: Thank you. That is helpful. I was not familiar with that.

Proposed section 18.1(2) says the bank shall publish the policy, and that is in relation to the section we just looked at. The governor has to publish that policy and cannot act on the policy for seven days after it is published. That means that the public would get to know it and would know that there is an objective test they can apply to what the governor is doing.

In subparagraph (ii) there is no exception for investing in operating entities and there is no requirement for the governor to publish in the Canada Gazette any objective standards. Does it not cause you some concern that the Governor of the Bank of Canada could invest, buy and sell, possibly contrary to government policy and counterproductive to what he is trying to achieve, with no check, no consultation and no publication?

Mr. Giammarino: I have read that. My understanding was that those differences had to do with the severity of the event. If it was, in the governor's opinion, a matter of extreme stress on the financial system, he must publish a policy and say that he is buying these securities because there is no liquidity in that. However, in the normal conduct of monetary policy and normal financial stability, he is allowed, as he is now, to buy other securities.

I read that as broadening the securities that they could get involved with and, in particular, the players with whom they can deal. That is in response to what has changed in the money market. I am sure they told you these statistics this morning. Private non-bank institutions are big players in the money market now. The Bank of Canada does not have the same access to them, and they do not have the same access to the Bank of Canada. I saw that section as allowing that discretion.

Senator Di Nino: Proposed section 19 under clause 147 covers your point.

The Chair: That is helpful. I think Mr. Giammarino has possibly misread the document. The publication in the Canada Gazette in the normal course is with respect to the first section we looked at that has that exception for operating the entities. In subparagraph (ii), he can go ahead and act and invest in and buy operating entities. All he must do, as you see in section 19, is publish what he has done after the fact. For example, he tells us this after, potentially, a conflict in public policy between the government and the governor has taken place. He publishes in the Canada Gazette and says, ``This is what I did.''

Mr. Giammarino: Your first reference was to proposed section 18(g)(ii); proposed section 19 covers subparagraph (ii). It allows for that discretion.

The Chair: As an economist of many years, having been trained at St. Francis Xavier and having attended Queen's University, do you not find that to be quite a broad, at the very least, bit of power for one individual?

Mr. Giammarino: Sure. There is no question that without these amendments, the Governor of the Bank of Canada has a tremendous amount of power. It is one of the most difficult jobs in the nation to make these calls and to make them in the best interests of the country.

If we are worried about that discretion, then it must start earlier because there is so much power there already to affect capital markets, and that section is broadening it. As an economist, I would refer to rules versus discretion. There is a long academic debate about what we do governing ourselves. Do we set rules or give discretion? I have studied models and theories about the conditions, but, in the end, you must rely on your system of checks and balances.

The Chair: You indicated to Senator Di Nino that the changing economic times require this significantly increased discretion in a Bank of Canada position that has been in existence for many years. Is it now necessary in this budget implementation bill to make these significant changes?

Mr. Giammarino: That is my opinion.

The Chair: Some of your colleagues have publicly expressed concerns about this section. Can you tell us what their concerns are?

Mr. Giammarino: Their concerns are with the use of the power and the moral hazard that it would cause in the capital markets. The governor could go out and make those mistakes or, knowing that the governor has that power could induce the kind of behaviour in capital markets that they are trying to avoid in the first place.

My sense is that the Bank of Canada has addressed those issues in different publications. They are aware that they have this power and that moral hazard could result. That is the response. In the end, I do not think there is a magic answer that we can find that would say, yes, we should restrict them in some particular way. Essentially, we are trying to look out for developments that we cannot envision at this point. That is how we got into the situation. Securities and transactions that I would not have dreamed of when I first started studying finance are now common place.

The Chair: We are aware of what is happening in the United States with respect to asset-backed instruments and the mortgage market. I have read articles that suggest that this discretion would create greater risk of that kind of thing happening in Canada. Do you disagree with those assessments?

Mr. Giammarino: I am not aware of those articles. The concern I am aware of with that market is more disconnect than discretion between the initiators and the holders of the securities. We are in a new era for banking. Banks started off as a relationship institution where they would know the people that were borrowing from them and carry that loan through to the end, and now they have liquefied it. If that is the discretion being referred to, then I agree that is a concern.

I think the incentives of the private sector will be studied and monitored. The central bank is not a for-profit entity. Its mandate is the public interest. Ultimately, there are the directives of the minister that can say, ``This must cease.''

Senator Di Nino: The way I read proposed subparagraph 18(g)(ii) goes to your point, the relaxation of the constraints. They talk about ``severe and unusual stress.'' Obviously, if that happens and the governor does not have seven days, that is a disruption in the market. That was my concern. I agree with everything that you are saying. I think we have a fantastically strong system in this country, and I do not think we have quite the same in the U.S. That is on the public record, so I am prepared to defend that statement.

Having said that, this speaks to your point about the relaxation of the constraints in case there is a severe and unusual stress on the system and you must act within a half hour and not within seven days. Am I correct in that assumption?

Mr. Giammarino: I think that is a good point, in particular, if you think of the actions taken after 9/11. Suppose that was off the books. They had little time and it is quite impressive how they managed to smooth through what would have been a disaster in the financial market. It was a significant hit. These events do seem to happen quickly. Can we predict? Can we say that every crisis will involve a half-hour decision? No. Some of them may involve more time, and maybe there is opportunity for debate of the appropriate action. I agree with your point.

I guess it refers also to what we call completing the contract or completing the markets. You come up with events that you cannot imagine today and you are trying to decide what you will do. We cannot decide that in this room. We cannot say that it will be okay to act on certain securities but not on other others, because we do not know what those securities are. They are manufactured daily as we speak.


The Chair: Are there any other questions regarding the Bank of Canada?


Senator Ringuette: I have a question for Mr. Giammarino. You are at the University of British Columbia.

Mr. Giammarino: Yes.

Senator Ringuette: I read some time ago that UBC had a tuition freeze for three years.

Mr. Giammarino: My recollection is that it was longer than that. It seemed like forever.

Senator Ringuette: The objective of that freeze was to increase enrolment, but the freeze of tuition fees did not produce an increase in enrolment.

Mr. Giammarino: I do not know about the aggregate numbers, but I can tell you anecdotes of the consequences. I was chairman of the finance division through that period. My responsibility was staffing the finance courses in the commerce program. Finance was among the most popular courses; as a result, we would ration the number of students coming in. That freeze hit at a time when other schools, especially in the U.S., were in the opposite situation of generating higher tuition through their MBA programs. We went from 15 faculty in my group to 9. I was stuck with the job of trying to staff courses for all these students. We increased class size.

I remember quite distinctly a student coming in and petitioning me to be allowed into the finance option. I said, ``I am sorry, but we cannot increase the enrolment. I have no instructors to go any further. You have to talk to your politician about relaxing the tuition freeze.'' He replied, ``No, I cannot do that; it is all about access.''

There is a great irony that if we impose a tuition freeze in the sense of access and do not counter it with an increase in funding, we will do the opposite. We ended up with fewer resources, fewer classes and more restrictions.

Senator Ringuette: Did you end up with less student enrolment?

Mr. Giammarino: We were to capacity at every point.

Senator Ringuette: There was no possibility of increasing the enrolment even though the tuition fee was frozen?

Mr. Giammarino: No. It is worth considering the difference between professional schools and others. Our MBA program was frozen with every other program at a really below-cost rate. Since the relaxation of that tuition freeze, we have gone back in the finance division from 9 faculty to 15. We have increased undergraduate enrolment by a third. That is as a result of other things, including gifts from donors and more funding from the provincial government.

Lifting the freeze helped us because we could increase the tuition of those people willing to pay. They benefit hugely from getting an MBA because their salaries are quite high afterwards. We can use that money to support courses in all areas, including the arts.

Senator Ringuette: Thank you. I believe Ms. Aziz has comments to add.

Ms. Aziz: I have comments specific to British Columbia. I was a high school student in British Columbia at the time the tuition fee freeze was in place. I do not disagree with you whatsoever about there not being an adequate increase in provincial funding. While tuition fees or revenue from students was frozen, there was not an adequate corresponding increase in provincial funding. That was the main problem.

Since the tuition fee freeze has been lifted, although I think the experiences are different depending on the different programs, there has been a huge issue with regard to enrolment at particularly the community colleges. College education used to be relatively affordable for students in British Columbia. The way the British Columbia education system is set up is quite unique in Canada, and it is a good system.

I wish Senator Stratton were still here. Colleges act as feeders to the universities. Students start off in two-year programs in colleges, which are often cheaper than a university program, and they make their way up into a university.

Senator Ringuette: That is not unique. It is the same in Quebec with respect to the CEGEP technical courses and then moving on to bachelor degree courses in university.

Ms. Aziz: I meant outside Quebec, because the situation there is so different from the rest of Canada.

There has been a concern with regards to decreased enrolment in community colleges. Again, that is overall in a general stroke and broader perspective in terms of what has happened with tuition fees.

Senator Ringuette: Ms. Aziz, earlier you indicated with regard to the Canada Millennium Scholarship Foundation the grave concern you had that the program gave money to the provinces to administer.

This morning, Ms. Frith was before us. She is the director of the Canada Student Loans Program for the department. She indicated to us that they are now into the transition, moving from closing up the millennium program and moving into the new program. She indicated to us that they were negotiating with the provincial governments to have a similar kind of disbursement to the millennium program. What are your comments on that?

Ms. Aziz: For a number of years during the first half of the mandate of the foundation, we voice concern about provincial displacement. My colleagues here mentioned the issue of provincial displacement as well, this idea that money was being transferred to the provinces but because of how the foundation was set up and the agreements that ensued, provinces were free for a number of years to spend that money on whatever they wanted or to displace their own programs.

This morning, we also spoke with the new director general of the Canada Student Loans Program, who will be taking office shortly, as well as a number of different CSLP officials about this concern and ensuring that money is not being displaced. That is obviously a concern for students at the federal level. Any federal money allocated to student financial assistance should augment any provincial aid programs and ensure that students see a net increase in funding rather than either no increase whatsoever or even a decrease in some cases.

Senator Ringuette: Whom did you meet with this morning?

Ms. Aziz: This morning we were at a committee meeting on the student financial assistance program where there were a number of different officials from the Canada Student Loans Program, as well as the new director of the program who takes over in September, if I am not mistaken.

Ms. Fry: The transition has already occurred.

Ms. Aziz: It has already happened, so there is a new director general of the Canada Student Loans Program. We spoke extensively this morning about moving into the new grants program and ensuring that provincial governments were working with the federal government to make the transition.

Senator Ringuette: You are telling us that this morning you met with the successor of Ms. Frith?

Ms. Aziz: Yes.

Senator Ringuette: That is interesting. The other interesting aspect is that the issue with regard to how the provinces help post-secondary education is very important. I will give you an example. For New Brunswick, the effect of the transfer payment for social programs and post-secondary education for the next 10 years is a $1.2 billion lack of funding from the federal government to the province.

In that kind of situation, how do you think the Province of New Brunswick will be able to help towards post- secondary education?

Ms. Aziz: There are two aspects to the issue you have raised. Our organization obviously works on both, but it just spoke on student financial assistance today because that is what is contained within the bill.

Obviously, there is a need for the federal government to increase funding for post-secondary education through the Canada Social Transfer, as you have just suggested. We are still operating in a reality of decreased funding for post- secondary education, even with the announcement in Budget 2007 that increased funding to the Canada Social Transfer earmarked for post-secondary education. With that increase, we are still at over $1 billion lower per capita student funding than we were in the beginning of the 1990s, before there were a number of cuts to post-secondary education funding.

You are absolutely correct. There is still a lot of work to do around core funding for post-secondary education across the country.

As for assisting with students and with the system, the federal government is involved in funding students in two different ways. The first is through institutional funding through the Canada Social Transfer, and the second is this direct funding for students.

Senator Ringuette: It depends on which province you are referring to. Actually only three provinces have received an increase from the federal government for the next 10 years for help towards post-secondary education. Those provinces are Ontario, Alberta and British Columbia, which are the most populous provinces.

That will increase the disparity between the students living in less populated provinces and students living in provinces with larger populations. I hope that both your federations will look into this issue because in the next 10 years, it will affect many of your colleagues.

Ms. Aziz: Absolutely.

Senator Ringuette: You can then add $30 million over the next five years to student loans, but if you reduce post- secondary institution funding by $1.2 billion, you are losing at the end of the day.

Ms. Aziz: I could not agree with you more.

Senator Ringuette: I hope you will voice that.

Ms. Aziz: Absolutely. We do, for sure.

Mr. Churchill: How students are affected at the ground level in each province is one of the things we need to keep track of as we move forward in the transition from millennium to the new program.

Currently, we have millennium programs in conjunction with the provinces across the country that are treating students uniquely in the various provinces and helping them out in the ways that are best for them. When we transition into the new grants, these programs will obviously have to change.

As we move forward, we need to keep track of how this will affect students at the ground level in the provinces. It is especially an issue in Quebec. The way I understand the opt-out with Quebec funding is that Quebec can opt out of a federal program if they have a comparable program run provincially.

Currently in Quebec there is no income-based program. The question you must ask yourself is this: If there is no income-based program in Quebec, what will happen with the funding that was going into Quebec? That was about $80 million for those students. We must really keep track of how this new program will affect the provinces' ability to provide for students.

Senator Ringuette: As a result of the rejigging of the transfer payments for social programs and post-secondary education from the federal government, Quebec is one of the provinces that will lose out in the next 10 years with regard to that kind of funding.

Ms. Fry: On that note, one of the other things our organization talks a lot about is a dedicated transfer for post- secondary education and a pan-Canadian accord. There would be an agreement between the federal government and the provinces to dedicate money for post-secondary education. That would be accompanied by an accord which would recognize the importance of post-secondary education in each province and would ensure institutions and students are getting the money they need to access high quality education no matter where they are in the country.

Senator Ringuette: That is not what is happening.

Ms. Fry: No, that is not happening. That is something we are trying to make happen.

The Chair: We are here to try to help you make that happen.

On behalf of all senators, I wish to thank you. The Standing Senate Committee on National Finance appreciates your coming here today, Ms. Aziz, Mr. Churchill, Ms. Fry and Mr. Giammarino. Each of you has dealt with issues that are extremely important. We must take the information you have given us and focus on the changes being proposed in this budget implementation bill, Bill C-50.

Whereas we would like to be able to study the entire legislation that relates to each of your issues, we are charged with the requirement to deal with the bill, and the changes, though few in number, could have a very large impact with respect to each subject. As we mentioned previously, there are 10 parts, and in each of those parts there are many different aspects.

The information and the discussion we have had this afternoon is very helpful to us in that deliberation. Should you at any time want to contact the Standing Senate Committee on National Finance, please do not hesitate to send a note along. As my colleague Senator Di Nino indicated earlier, send it to the clerk of our committee, who will ensure that the document is circulated to all senators.

I thank everyone for being here today.

The committee adjourned.

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