Proceedings of the Standing Senate Committee on
National Finance
Issue 35 - Evidence
OTTAWA, Thursday, March 21, 2002
The Standing Senate Committee on National Finance, to which was referred Bill C-49, and act to implement certain provisions of the budget tabled in Parliament on December 10, 2001, met this day at 9:01 a.m. to give consideration to the bill.
Senator Lowell Murray (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, we have a quorum. We have three sets of witnesses this morning, the first from the United Steelworkers of America, Mr. McBrearty, Mr. Falconer, and Mr. Deveau.
Mr. McBrearty has an opening statement to make. Please proceed.
Mr. Lawrence McBrearty, National Director, United Steelworkers of America: First, I should like to thank the committee for agreeing to hear our submission on Bill C-49. The steelworkers are committed to assisting the government and the minister in making a correct decision regarding security. Our union knows the industry, the employers, and, of course, the workers. We think we have a unique perspective that can help make Canadian society even more safe and secure.
Security, whether at airports or other public and private locations, is everyone's responsibility, and everyone should participate in making it work.
Our union is a general workers' union that represents over 180,000 members in all regions of Canada and in all sectors of the economy, including the service sector in general and the security industry in particular. We represent about 25,000 security guards and officers working in private security companies such as Initial, Group 4, Securitas, the Canadian Corps of Commissionaires and more. To put that figure in perspective, the Steelworkers represent far more security officers than any other union in Canada and is a larger presence in the industry than any other single employer. Therefore, we offer the biggest window on the contract security industry.
About 800 to 1,000 of our members provide pre-screening services at airports across Canada, including the two Montreal airports, Quebec City, Mont Joli, Seven Islands, Baie Comeau, Ottawa, Calgary, St. John's, Newfoundland, Gander, Deer Lake, Stephenville, Goose Bay, Wabush and others.
The contract security industry in Canada consists of a large number of security firms, ranging from very large companies employing thousands of security officers to very small businesses with only a handful of employees. However, contract security firms of all sizes operate essentially the same way. The firm enters into a contract with a client to assign security officers to a client's site. Security officers' duties may range from simple watch-keeping to more sophisticated monitoring and screening. The venue may be a construction site, a residential site, an office building, a government complex, airports and others.
Generally, security firms operate with very little overhead. There are few supervision and managerial employees. Little office space is required. The cost of uniforms and, if necessary, patrol vehicles, is minimal. Currently, training is limited, at best. Labour is the largest operating cost to security firms.
Security firms secure work through competitive bidding for clients' contracts. The lowest bidder usually wins the contract. Security firms earn profit based on the difference between their actual costs and the fees they receive under the contract. Wages are the basis of competition in this industry. Cutthroat bidding between security agencies has meant that clients' contracts frequently change.
For all of these reasons, low wage rates, poor working conditions, minimal training, and quality standards and high levels of employee turnover have characterized the security industry. As a result, few view employment as a security officer as a viable, long-term career choice.
Efforts to move the industry toward client selection based on quality of service have been severely hampered by the intensely competitive nature of the industry. Investments in training, management infrastructure, communication technology and so forth raise operating costs. Employers choosing to make these investments are vulnerable to losing contracts to their competitors.
High employee turnover means additional costs to train new employees. Training costs may be significant — particularly with respect to client sites such as airports where the security assignment requires specialized skills and qualifications.
We believe that our policy, which is included in the written submission, if implemented fully, would stabilize the industry and improve security.
In addition to our goals on regulations, licensing and training, the main reason for our presentation today is the Steelworkers believe the following two issues need to be included in Bill C-49 to make it work. First, the need to add successor rights provisions to the draft legislation and, second, compensation to the board of governors of the new authority.
All Canadian labour relations statutes include provisions for successor rights. Successor rights provisions require that a company purchasing another company that is bound by a collective agreement step in the shoes of the preceding company as the vendor and assume all of the obligations under the collective agreement. In this way, the sale of a business does not interrupt the employees' job security. The purpose of successor rights provisions is to protect the stability of labour relations.
The successor rights provisions of the Canada Labour Code are located at sections 43 and 47.1. The successor rights provisions of the code only apply in the context of the sale of business. However, there is no sale of a business within the meaning of the code when a client decides to replace one contractor with another contractor or when a client decides to stop using a contractor and start using its own employees to perform the work.
There exist no statutory successor rights that could continue a collective agreement between a union and a contractor security firm after that firm loses its client contract. We have cautioned the government that if successor rights provisions are not included in the legislation, it would destabilize the delivery of airport security services.
We have repeatedly urged the government to ensure that our members working at airports receive job security and that our union maintains its current role. That is the reason we have urged the government to include provisions for successor rights in any legislation that creates a new agency for administering airport security. Bill C-49, as proposed, does not include any provisions for successor rights. We urge honourable senators to rectify this omission.
An obvious simple and effective means of creating successor rights for security operatives would be to include a ``deemed sale of business'' clause which would apply only to security services provided under the new legislation. Therefore, this inclusion of deeming successor rights would ensure stability in the provision of airport security by ensuring that labour relations between management and security officers and their bargaining agents would not be disrupted. This would also ensure the continuity of employment of security officers who, in many cases, have years of experience at their respective airports.
Failure to provide successor rights would continue the problem of high employee turnover among security officers assigned to airports. High turnover will result in higher costs, adding to the ongoing expenses of qualifying and training security officers assigned to the airports. High turnover will also result in additional security risks, as relatively new employees would be performing background checks on new hirees with the potential of oversight and other failures.
For all of these reasons, reliable and effective airport security demands a stable workforce. Only job security and continuing terms of employment can reduce turnover and ensure workforce stability. Successor rights are needed, and they are the answer.
The proposed legislation also provides for an 11-member board of governors. Four seats are assigned to representatives of the airline, industry and airport authorities. The remaining seven seats are assigned to appointees selected by the Governor in Council on the recommendation of the Minister of Transport.
We believe that at least one of the seats on the board of governors should be assigned to an appointee able to reflect the experience and expertise of the security officers who actually deliver the services that ensure public safety.
We completely reject any suggestion that the only ``stakeholders'' in airport security are the airlines, airport authorities and the public. We consider it self-evident that security officers are stakeholders at least as significant as the other stakeholders.
Further, we do not accept the suggestion that the perspective of security officers coincides with members of the general public. Again, no other participant in airport security possesses the security officer's experience, expertise and frontline exposure to security issues. Only representatives of security officers can provide the new agency board with unfiltered information regarding directives, standards or other measures that the new board may establish.
The steelworkers want to be part of the solution with respect to airport security and other private security issues and not be part of the problem.
We presented our position to the Finance Committee of the House of Commons. The changes the committee recommended were overridden when the bill came back to the House. We believe these changes only make the new legislation better and will strengthen security in Canada.
Senator Lawson: I can make my position very simple. I agree. I regret that you were not aware of the gathering last evening at which the ministers were present. I believe you would have found it very informative as to the positions they took.
We made the position to them that if this program is to be successful it is important to have the advantage of a workforce which, based on training, skill, experience and commitment, will be the key to its success. There should be some recognition of that.
As you pointed out clearly this morning, you represent 25,000 workers and that the government is making a serious mistake in not taking advantage of that experience. Those of us who have been in the labour management field for any period of time know that success is achieved when you have the cooperation and commitment of the workers in order to make it a success.
I do not think the issue of successor status has been raised before. We raised it last night. The minister indicated that he would obtain some information that would ensure some recognition be given to successor status. In what form, we do not know. He did not talk about agreeing to any amendment. We know the reluctance of the government to agree to amendments. However, he did indicate that they would be responsive in the area of successor status. I think that is very important.
One point I raised with the minister is that this is a new agency. I said if you hire new employees to work directly for the new agency — which is one of the provisions in the three options they have — does this mean public service unions would have the right to come in and organize these people or, under the present government agreements, which contain successor clauses, would they have certain rights?
There seemed to be a moment of uncertainty on their part as to what would happen there. Certainly, my position is that recognition must be given to existing contracts and that there is a long-time provision in the Canada Labour Code that provides for successor status. That should have been included automatically in this case. We made that position. I certainly support the position that you are putting forward, Mr. McBrearty.
I detect there is a reluctance on the part of the government to agree to an amendment at this date because they are targeting a start-up date of April 1.
On the issue of representation, Minister Collenette said:
I have already committed that among the seven government representatives, there will be a person or persons sensitive to organized labour's goals and ideals, and similarly for the tourist industry and other affected stakeholder groups.
I asked him specifically if that would include labour representatives — in particular labour representatives from those organizations that presently represent some of the workers and are likely, with successor status, to have continuing contracts. In other cases where there is not successor status and if they give contracts to existing airport authorities, then those contracts should continue to exist. He said that all those contracts would be respected. He also said that there would be people who are sensitive to organized labour's goals. I asked if that would include representatives of the workers. He was not precise or definitive, but he left me with the impression that consideration would be given to that.
Your submission is right on point and has significant merit.
Mr. McBrearty: We met with Minister Collenette on many occasions and had very open and frank discussions.
We know that the issue of successor rights would cause certain difficulties in labour relations. I will explain. The Canada Labour Code has successor rights now. However, the Canada Labour Code does not have successor rights that apply to a contractor of a client. Let us say that I am a businessman and I contract out work to workers who are unionized. If, tomorrow, I change contractors, then no successor rights apply. Successor rights apply to a company.
I will cite as an example the Iron Ore Company of Canada. My good friend the senator and I worked there together in the early 1980s. If the Iron Ore Company of Canada sells its business to Rio Tinto, successor rights apply. If the Iron Ore Company of Canada has subcontractors there, then Rio Tinto is not obliged to adhere to any rules of the subcontractor because the code does not apply.
We have also met with the Minister of Labour on this bill. We know that if we try to apply pressure, as we usually do, on ministers to amend the Labour Code to have successor rights in the security industry, mainly in the airports, then amendments to the Labour Code would be applicable to all employers, workers and unions across the country. We know that there are contractors and companies who do not want this. We understand that. We went through that debate.
This is why we are saying that we are dealing with very particular piece legislation, one that is very much needed because of events that we all know about and that we do not want to live through again.
I am not a lawyer. However, in new legislation the government has the opportunity and the authority to write whatever they want to write into it. This is why we are not asking for amendments to the Labour Code. We are not for something that would cause a hassle across the country with certain employers or contractors. We are saying that the legislation says that in the case of the security in the airports, that when a new security firm comes in it is a ``deemed sale of business.'' It is not amending the Labour Code.
We have been involved in the security industry across Canada for more than 30 years now. A high percentage of the people who work in the security industry are single-parent women who, if they are not working below minimum wage, are at minimum wage. They must work many hours to have fair — I cannot even call it ``fair'' — take-home pay. When I talk to people about this, they say, ``Yes, Lawrence, but they are with your union, why do you not get them better contracts?'' The minute we get them 10 cents more an hour from Securitas, for example, or Group 4, when the bid comes up for a new contract, another security firm comes in and bids 10 cents less and they get it. There is no civilization in the industry. However, the bigger employers agree with us.
We need security in our airports. What happened in the United States can happen anywhere; I truly hope it will never happen in Canada. If we do not focus on how we will treat the security of the public at the airports, and we hang our hat on some things that are mere details and not really important issues, then I will say — as we usually say at our negotiation tables — the train will pass and we will have forgotten to get on it. We do not see this as a big issue.
As Senator Lawson mentioned, the new authority has the authority to hire. They will hire the employees themselves, or they can be contracted out, or they can be both.
I do not know if any honourable senators have ever been in labour relations. We are dealing with up to five employers and a few other unions inside the same industry. We are dealing here with the lives of people. We must stabilize the workforce for these men, women and young people who are working in the security industry. We cannot tell these people that it does not matter who their employer will be in the morning.
The people who are working as screeners on the main floors of airports, or in what I call the basements of airports putting luggage on planes, must feel that they are protected and secure. When they feel they are protected and secure, the passengers — Canadian citizens — will feel protected and secure.
What has been happening in the airports is not the fault of security employees. It could have happened to anyone. This is why we are saying successor rights are needed.
With regard to the board, we feel that we can bring some expertise to it. We have sat on company boards before. Our union helped to restructure Algoma Steel, for example. We had three members on the board of the company. We know how boards operate. I am not asking for a seat on the board; I have other things to do. There are many security companies that need to be organized, and we intend to do it. However, we would like to have an appointee, a seat of the board. We would like to be able to suggest to the minister a person who is capable of filtering and communicating the right information to the board as to what is happening with security in airports. If this legislation is to govern 90 airports across the country, someone will have to know what is going on in those airports.
One cannot depend on a board of an airport authority. Mind you — and I say this openly — there are too many bosses in the airports now. The security system is left and right. We believe we can help. If we do not help, then just take us off the board and we will go with that. However, we would like the chance to be part of the solution and not part of the problem.
Senator Comeau: Last night, two ministers appeared before us. The impression that I had from the ministers' statements was that because of September 11, we have to hurry, we have to make a mad rush to get some things in place and, if there are casualties in the process, then Canadians will accept it because it is a part of life. That was more or less the impression with which I was left. I identified casualties in rural communities without actually going into the full details of the impact of such actions. We are now hearing about another group of victims of September 11 due to haste in bringing forward this legislation.
It was somewhat scary to hear from you that our airport security people are based on the low bidder. Whoever bids the lowest will get the contract — it has been that way up to now. However, in light of September 11, one would have thought that we might have seen the light and said, ``Look, we cannot go with low bidder on this stuff; we have to go with the best.'' Training and simulation programs cost money.
With the $2.2 billion that the government says it needs over the next five years to assure Canadians that airports are secure. I do not see how that can be possible based on the lowest bid.
Because this is a scary prospect, was any discussion held with your group as to ideas concerning the preparation of this bill that is before us? Was there any dialogue with your group on this proposed legislation?
Mr. McBrearty: As I mentioned earlier, we had some very early discussions, with the Minister of Transport before the bill came out. These discussions were friendly and open, much like the one we are having today. At that time, we raised the importance of training, which goes a long way to answering the question of stability.
Currently, licensing of security guards differs from province to province. In some provinces, the employee receives the certification or permit. In other provinces, it is the employer, the security firm that receives it.
There is minimal training. We want the licensing done after the training, and we want very high-level training. I have been meeting with HRDC and the security companies, and we are currently organizing a national training industrial council in the security industry across the country from. We will be receiving some seed money from HRDC.
The issue of the low bidder has been explained to the minister. It is not new to those in the security industry. National standards must be included in the proposed bill. We have examples of national standards in our union. We have what we call the ``master agreements.''
A good example of what happens in the security industry in the Province of Quebec is called the ``decree system.'' In the 1940s, the Canadian government introduced a decree system. The Province of Quebec kept it and introduced it in special sectors.
We represent more than 15,000 security men and women in Quebec. We negotiate one collective agreement with the major companies in the security industry. The employers were asked to form employer associations. We sat down with the employer associations and negotiated a collective agreement. I advised the minister that we agreed in Quebec, and we are also prepared to agree, with respect to the new legislation at airports, that there will be no strikes in the security industry.
Once that collective agreement is negotiated, the government expands it as a provincial decree. A security company cannot pay less than that decreed or contained in the collective agreement. That is one way of implementing it.
The lowest bid is the greatest problem. We have been told that the firms in place will be there until the end of December. At that point the authority is taking over. As a result, things may change. This is where we see the importance of stability. There is little use to working with HRDC toward training and licensing and with the Ministry of Transport when, at the end of the day, the workers will be kicked out. There is also a big cost associated with this, the training and staff turnover.
Senator Comeau: It seems as if the number crunchers prepared the bill, not the people familiar with the airline industry.
I am surprised that you have no representation on the national board. That comes as a shock to me. You said it so forcefully that if the employees that are handling baggage do have problems, it cannot get back in a meaningful way to the board making the decisions nationally. Why is labour not represented on the national board?
Mr. McBrearty: I think the vote at the finance committee was in our favour, 9-8. However, it was overturned in the House of Commons.
Senator Comeau: That is straight politics. Why were you not represented on the board?
Mr. McBrearty: I cannot answer that question. I do not know why. That is a very good question.
Senator Comeau: It has to be better than a whim.
Mr. McBrearty: We were told that we would be part of the general public and that we could submit names.
Senator Comeau: You are not the general public. Your workers are the frontline people minding our security. I travel weekly, and I want to feel secure. If the number crunchers are saying, ``No, we do not want you on the board,'' it scares me even more.
Mr. Dennis Deveau, Government Liaison, United Steelworkers of America: Honourable senators, on the subject of representation, we have been told — and told in the committee as well — that government represents the public as a whole. Even in the House, Minister Collenette said, ``I have listened to the Steelworkers and others, and I promise you that I will appoint someone with sensitivity.''
The minister told us in various committees that the airline industry itself — that is Air Canada, WestJet and whatever other companies are involved in the airline industry — will be submitting possibly four names, of which two he will select. The representatives of the airport authorities will be selected in the same way.
We are confused. We have people who actually work in the airport and deal with the security of every one of us day to day, and he will not have the unions submit the names from which he will pick. He is saying the government, on behalf of labour, will make that recommendation. The minister is saying that the airlines and airports should be able to select some people and he will make the final selection.
The labour unions, which actually represent the people who are there on a day-to-day basis, ought to be able to say, ``Look, our people will trust the following four people, so pick two of those people or one of those people''? We have not been given the answer.
Senator Mahovlich: You are representing 25,000 employees?
Mr. McBrearty: That is correct.
Senator Mahovlich: Are you not part of the airline industry?
Mr. McBrearty: We are.
Senator Mahovlich: Security is part of the industry now, is it not? That is what it says here. ``Four seats are assigned to representatives of the airline industry.'' You are representing the airline industry.
Mr. Deveau: We are told that ``airlines'' means Air Canada.
Senator Mahovlich: Is the definition of ``airline industry,'' ``Air Canada?'' Every security officer has the authority at airports. They stop me from going in and out — they can stop me at any time — so that is authority. There should be representation on this board. It is only common sense to have that.
Mr. McBrearty: The airport authority does not include security guards. The airport authority is made up of management people.
The airline industry does not include security guards in its definition; rather it includes the airlines, the ticket agents, the baggage handlers and the like. That is the information that we have.
Senator Mahovlich: Things should change because of September 11. They must include security now.
Mr. McBrearty: Our understanding is that the airlines, the new airport authority and the general public will have seats on the board.
We are considered part of the general public.
Senator Mahovlich: How many seats are there for the general public?
Mr. McBrearty: I think there are seven seats. We were told this very clearly and we understand that we are considered in the general public.
Senator Mahovlich: You should have one or two of those seats.
Mr. McBrearty: Nothing states that we will have a seat. We are suggesting that, in the proposed legislation, the stakeholders involved in Canadian airports are definitely the airlines and the airport authority, and that there are also the workers that are considered part of the general public and not part of the industry. That is fine for the airlines, for the airport authority and for the public, too. Out of those public seats, we should have one or two seats so that the labour group can provide nominees for those seats.
Senator Mahovlich: It is just like the hockey players, who had the same problem: We had no representation for many years.
Senator Bolduc: Last night Minister Collenette appeared before the committee as a witness. He told us, and I quote:
I have already committed that among the seven government representatives, there will be a person or persons sensitive to organized labour's goals and ideals, and similarly for the tourist industry and other affected stakeholder groups.
Is my understanding correct that you said it is just the minister's intention, and that you want a clause in the law, not just the political will of the minister?
Mr. McBrearty: Yes, we would like to see one or two seats allocated in the proposed legislation to represent labour.
Senator Rompkey: I met Mr. McBrearty 20 years ago when we were acting on behalf of the northern miners. That was an interesting experience for both of us and a very successful one. I am happy to see him again.
I want to ask about successor rights. Mr. McBrearty will remember this because the United Steelworkers of America represented the workers in Goose Bay. When Goose Bay was privatized, there was a contract awarded without successor rights, which subsequently cost DND about $20 million. They had not taken in account the successor rights. There was a court ruling on that, as I recall, and it was not private-sector-to-private-sector but rather, it was public- sector-to-private-sector. There was not a court ruling, but a quasi-judicial ruling by another body that ruled that the union had successor rights that must be protected. Can you comment on that? It seems to be apropos to the point you are making about successor rights.
Mr. McBrearty: Some 20 years ago or more, the Canada Labour Code covered successor rights at large. I do not remember precise court cases, however, I do remember the one in Goose Bay that you mentioned. We could obtain that information for you, if you need it. The Labour Code has been amended since that time.
However, there were Supreme Court cases on the successor right of the labour code that was in place at the time that has since been amended. The amendment excluded contractors.
That is why the security group now feels excluded from the Canada Labour Code as successor rights. There is only one part of the labour code that applies to security — 47.1 — but it only applies to the matter of being offered the job or to the matter of receiving a severance. That is not what you call ``successor rights.''
The Chairman: Mr. McBrearty, you have appeared before the committee with suggested amendments. Perhaps a honourable senator will move one or more of those amendments. One or more may pass and then again, perhaps not.
It is always difficult to ask an experienced negotiator such as yourself to turn your mind to a second-best option, from your point of view. If an amendment cannot pass, then perhaps a commitment from the responsible minister would be a second-best option. You can find ways of communicating that through one or other of your friends at the table — any of us. At least turn your mind to that after you leave the table, if you would.
Mr. McBrearty: We will do that.
The Chairman: We will now have the Air Transport Association of Canada witnesses.
The Air Transport Association of Canada is represented today by Mr. Mackay and Mr. Everson.
Mr. Mackay, please proceed.
Mr. Clifford Mackay, President and CEO, Air Transport Association of Canada: Honourable senators, I have an apology to make. We normally come to these meetings with a presentation in both official languages. However, we had a mix-up and the wrong document was sent to translation yesterday. I must apologize to the committee because I am here with an English-only presentation. We can circulate the English documents but unfortunately, I cannot circulate the French documents today. Please accept my apologies.
Air carriers are very much in favour of enhanced security in the system. We understand and are sensitive to the tragedies of September 11. It affected not only our passengers but also our employees. We are very much involved on a day-to-day basis in a wide range of activities with government, both in Canada and internationally, in trying to find ways and means to improve aviation security at home and abroad.
Today I wish to speak specifically about a couple of elements that are in the bill before you for consideration. First, I should like to talk about the new tax. It is very large; the budget projects federal revenues for this coming year of $430 million and then in subsequent years $445 million a year. To put this in context, the new security charge will represent four times the industry's operating income for the year 2000. The year 2000, honourable senators, was a pretty good year for our industry; 2001 was not. That is 3 per cent of our entire revenue base. These are very large numbers.
The security charge will be combined with other increased costs that we are facing. Insurance costs have gone up dramatically. The airport rents that Ottawa collects have gone up yet again, and air navigation charges are going up as a result of the shift in traffic patterns. All of these costs will have a fundamental effect on the economy of our industry.
I will also remind honourable senators that this industry has laid off 10,000 people in the last year. We have seen our second-largest carrier go bankrupt. In the last few months we have seen signs of a recovery, but it is still sensitive and it is sensitive to price.
We are calling upon the government to do everything possible, with the introduction of this new tax, to avoid what we are calling ``sticker shock.'' Get the price down if you can do it — particularly in the short term, because it will moderate the negative impacts on demand in the next few months as the industry starts to recover.
The first option available would have been for the taxpayer to assume some of these new costs and not to impose all of the costs on the passenger. We have advocated this for many years. We still strongly believe that aviation security is an integral part of national security, and that there should be some balancing of the burden between the taxpayer and the passenger. Unfortunately, the government has not accepted that argument, and the bill before you imposes all of the costs on the passenger.
Having said that, we are now looking at what else we can do. I want to put before the committee an opportunity that you may have to make an important contribution to reducing the near-term costs.
Earlier this week I wrote to honourable senators outlining that opportunity. I hope you have received that correspondence. I will just review it briefly.
As you know, the most obvious option for reducing security charges as much as possible is to adopt normal business financing practices. In a business, when you are faced with the acquisition of large capital assets, you amortize them over time, and general accounting practice says that you depreciate the value of that asset over the useful life of that asset. That is a normal, everyday business practice.
We are advocating that the authority finance its capital requirements — which, in the first two to three years, will be well over $1 billion — and to amortize it in a normal practice. Our conservative estimate is that if they are allowed to do that, we will save something in the order of $330 million-plus in costs to consumers in the first two to three years of the program. That is not to say that over the life of the asset someone will not pay that bill, but they will not pay it in the first two to three years. Translated into a per passenger charge, that is easily $2 per passenger this year and next.
We believe this is a viable approach. We have talked to officials at the Department of Finance, and they have expressed great scepticism because of government accounting practices. As a result of that, we have consulted with the Auditor General. I have circulated that correspondence to you.
The Auditor General has made it clear that this approach is within the purview of the Minister of Finance to undertake subject to some fairly clear conditions. One of these conditions is that the authority will be required to use generally acceptable accounting practices. They will have to depreciate their capital no matter what. Second, there would need to be an authorization from the Minister of Finance, I assume after he has had an opportunity to look at the budget of the company. Third, there needs to be an appropriate authority under an act of Parliament. Those are the three requirements.
Honourable senators, we are suggesting that one of the things the committee may wish to consider seriously is an amendment to the legislation to make it clear that, subject to the Minister of Finance's approval, this act will permit the authority to engage in the financing of its capital.
We believe that this would not only be good, sound business practice but it would also make a significant contribution to reducing the near-term impact of the introduction of this tax on our industry.
Most analysts, when they look at the demand impact of a cost increase in our industry, generally use a factor of 0.8 per cent to 1.8 per cent impact; in other words, one dollar in new cost results in a reduction of up to 1.8 per cent of a dollar in demand or revenue. These are generally referred to as multiplier effects. The reason for the range is that, of course, the discount and leisure travel part of the market is much more price-sensitive than the business part of the market. Therefore, you have a bigger impact on demand if you are talking about discount travel than you are talking about business travel.
If new costs are being passed on to passengers in the order of $400 million a year and the highest part of the market that is growing at the moment is the discount market, there will be a dampening effect on demand. This will, no doubt, affect jobs because we are a labour-intensive industry. Labour is the only real variable factor we have to play with. If people do not travel, we do not fly, and people are laid off. It is that easy — not very pretty, but that is the economics of the business.
I would ask honourable senators to consider seriously an amendment to Bill C-49 that would allow a company to finance capital in the normal business way and thereby reduce some of the near-term cost pressure that this new measure will impose on the marketplace.
The second concern I should like to raise with honourable senators today relates the functioning of the new authority itself. We are concerned that a government agency will control passenger movement in the very middle of our check-in process. I know you understand what it means to move through an airport in good times and in bad. Obviously, security is an integral part of our ability to provide good customer service and move passengers efficiently and safely on to their destinations.
We all know that government agencies have difficulty in adjusting quickly to market circumstances as the demand goes up and down. There are many examples in our industry and this was one of the main factors behind deregulation of the industry. We have seen shortages of aviation inspectors, air traffic controllers and customs personnel. We have also experienced difficulty in redeploying financing to meet immediate market change requirements in the past.
All of this means that an agency that is essentially financed through government appropriations will have difficulty in meeting the rapid changes that the market sometimes imposes on our industry.
In light of this example, we feel that it is important that this new authority have in its legislation a requirement to set specific service standards for itself. We make two recommendations for your consideration. First, we would recommend that the new body be required to establish service targets. Clause 7. (2) of Bill C-49 specifies service requirements for contractors, but is silent on standards for the authority itself.
Second, the authority must establish a service quality management system — this is not unusual in corporate Canada today — and tender an annual report to Parliament, reporting on how well it is meeting its stated goals.
This service issue will be a major issue in the future. The operation of this agency is critical to our ability to provide good service to the travelling public.
Senator Kinsella: Mr. Mackay, were you present last evening when the two ministers appeared before this committee?
Mr. Mackay: Unfortunately, I was not here.
Senator Kinsella: I asked the ministers a question on the basis of the letter that you sent to all senators. An answer was provided by one of the officials. I did not quite understand their answer. My understanding of public administration and the Financial Administration Act, limited as it may be, leads me to the conclusion that there is no impediment to doing precisely what you are proposing. In other words, we could insert an authorizing clause in this bill that would authorize by statute. I believe that is required and I believe that is the opinion of the Auditor General.
Mr. Mackay: That is correct, senator. You do require somewhere an act of Parliament providing the authorization for the authority to do precisely that.
Senator Kinsella: That brings us to the questions: How important would this be? Is this a good idea? Is it a great idea? If it is a great idea, perhaps we can convince our colleagues opposite to support an amendment.
We are wasting our time if the Liberal senators simply rubber-stamp this thing. If they are prepared to see this as a good idea, then, as in the past, perhaps we could get this technical amendment through. The chairman alluded to this subject on another issue with the previous witnesses. He suggested that letters from ministers is another vehicle that might be used.
Would you elaborate on how important an idea this is?
Mr. Mackay: From the perspective of trying to reduce the initial cost shock of the tax that will start on April 1, all other things being equal, such an initiative would be extremely important. It could reduce the initial cost to passengers by 25 per cent. These are big numbers. It has an even bigger impact on short-haul flights because the cost of the ticket is, by definition, lower or on discount flights. This is very important from a cost and demand point of view in the short term.
We also believe strongly that this authority should operate in a business-like manner. In every way possible, we should be doing whatever we can to strengthen the governance structure of this authority. That is extremely important to not only the security of our passengers, but to the general service level we can offer them.
Operating as a business —and that is what we are proposing here — reinforces the governance structure of the company. It puts the accountability where it should be. It allows them more flexibility to manage their capital plans in response to the market.
I can provide examples, because we have run this system for the last couple of years for airlines. Companies have come to our company and said, ``We desperately need three machines here because the market has changed and we are changing our flight patterns. We do not need them six months from now, we need them three weeks from now.'' That is not unusual in our business. We want this authority to have the ability to operate in that sort of way. Managing their capital plan gives them much greater flexibility to do so.
Senator Kinsella: I know that when one uses figures such as millions and hundreds of millions of dollars, it is difficult to grasp the magnitude, but we must deal with the numbers. The front-end purchase of this capital equipment is in the order each year of how many hundreds of millions of dollars?
Mr. Mackay: In the first three years, starting this year, next year and the following year, they will expend roughly $1 billion in a pattern of, in the first year, of about $150 million; in the second year about $450 million; and, in the third year, roughly $300-some-odd-million. You are in the $1 billion ballpark for equipment that will almost entirely be used to scan luggage. We are talking big capital dollars.
Senator Kinsella: What is the estimated normal lifespan of this equipment? What would be a period of amortization that would be fair and not exaggerated one way or the other?
Mr. Mackay: Most experts say that a conservative estimate for the lifespan of the equipment is in the order of seven years. Seven to ten years would probably be reasonable, according to most accountants.
However, senator, you must understand that there are also significant costs associated with what we call bricks and mortar. These are big machines. We will have to rip walls out, change baggage lines around, all sorts of things. Part of that cost has amortization period of something in the order of 25 years. If you blend it, a 10-year period is a good figure to use for that.
Senator Kinsella: In view of that and considering that the Minister of Transport stated last night that the passenger load is now on the way back up, therefore, the estimated revenue that will go into the consolidated revenue from this charge is far beyond the $2 billion or $3 billion figure, because the numbers are increasing.
If we weighed both of those, and the public interest that I have as one of the senators representing a region, to minimize the impact, it would seem that we will be tying together allowing the authority to amortize, to bring down the cost, with the rising numbers.
I will set the scenario for you. I come from Fredericton. Air Nova has provided pretty good service between Fredericton and Halifax. These are very short hauls. With the new twin highway, it is a five-hour drive. Add on the $24 and people will look at that as paying the gas. On a practical level, if we can reduce that charge to $5 or $ 7 per embarkation, is this a case of saying that is where we could end up, if we go the way you are suggesting?
Mr. Mackay: We have tried to be very conservative here. We could reduce the figure to perhaps $8 or $9. Given the fact that revenue projections are now going up, perhaps we could get to a figure of $6 or $7. I do not wish to create expectations until the numbers are done, but it is clear that we are not speaking about 50 cents on the margin; it is a big number.
Senator Kinsella: The most important policy issue behind this entire thing has to do with a view of the role of government or the role of us being organized in society to do certain things in common. For example, we have a health care system. Everyone pays in through the tax system. Everyone does not use this system; it is not a user-based system.
The inevitable assumption one must read into the government's presentation is that they believe that those who fly should pay for the increased safety cost. Safety is universal. The people in the World Trade Center were not flying; they were on the ground. If we did not have the safety enhancement, we in this building, on the ground could be at risk.
The government has the fundamental policy principle wrong. Enhanced safety in the world of post-September 11 is a universal, general issue that affects all of us — not just those who board aircraft. Do you think there is any merit in that distinction?
Mr. Mackay: Absolutely, senator. From day one, we have subscribed to the policy position that aviation safety, especially post-September 11, is a question of national security. Those terrorists did not attack United Airlines or American Airlines — they attacked the United States. That was an attack against the state of the United States. It was not an attack against a commercial entity or against a particular group of passengers. We believe very strongly in that. Unfortunately, the government simply has not accepted that logic.
I am here before honourable senators today to argue to minimize the impact of a policy decision that has already been made. If I could change the policy decision, senator, I would love to, but I am not sure that I can.
Senator Kinsella: If the bill does not pass, the Ministry of Transport has a great deal of work to do in terms of standardizing the criteria that guide security inspectors. For example, there will be competing, normative issues, and I will give you a practical example. If you transfer from Terminal 1 to Terminal 2 at Pearson International Airport via the tunnel, you might well be asked to take your shoes off and put them on the conveyor belt. Passengers are left in their stocking feet on one side of the security trellis that they walk under, and their shoes are on the other side. That is especially inconvenient for many women who wear thin stockings or perhaps no socks at all. There is a public health norm that is being breached in the application of the security check for explosives, et cetera, in the shoes.
Does this bill indicate that the authority will have the duty to set out standard criteria and that these criteria not conflict with other things in our society such as public health?
Mr. Mackay: I do not believe the bill contemplates the authority having the ability to set security standards. The government reserves that right — the authority to set security measures, as they are referred to under the Aeronautics Act, and within that context, whatever standards need to be defined to implement the measure.
With respect to the implementation of those standards, absolutely this authority will be the primary vehicle to implement. The standards will be the responsibility of the minister and the department.
Senator Kinsella: If someone stepped on a piece of glass while trying to walk to the other side of security to retrieve their shoes, will they sue your industry or will they sue the security company?
Mr. Mackay: We do not know the answer to that question yet, because it is not clear, since this legislation will create an agency of the Crown. It is not clear to us what the insurance status of that agency will be. I can tell you that insurance liability broadly, both for airlines and for airports, is a major issue today.
Senator Cook: I am sitting here thinking that we are really focusing on air security. I live on the island of Newfoundland where there is no security for the water ferries. Has anyone given that any thought?
Mr. Mackay: I am not an expert on the other modes of transportation, but I do know that in ports there is work happening in the area of security. What and how much they are doing on the passenger side I could not tell you. I do not have that information.
Senator Cook: I am looking at your amendment and at the role of the board. Clause 24 (a), (b) and (c) set out a code of ethics for the directors, officers and employees of the authority; a committee of the board, including a human resource committee and an audit committee; and contracting policies for the authority.
What more do you have in the amendments than those set out in the proposed legislation?
Mr. Mackay: The major problem with the current proposed legislation is that the board could not finance its capital requirements. It does not have the legislative authority to do so. If you contemplate this amendment, then the board and its appropriate governance structures — the audit committee and all of the other things that go into the operation of a company — would have the authority to consider how they wish to finance their capital plan. They would bring that forward in their normal deliberations, the board would approve it, and that would then go on to the minister for his final oversight.
At the moment, the legislation does not allow that board to do that. They are not allowed to borrow money, to put this in its simplest terms. They cannot borrow, which is what you would do if you were buying a car, a house or anything else. They cannot do that.
Senator Bolduc: How can we call that a Crown corporation if they do not have the regular commercial powers?
Mr. Mackay: I am not a lawyer, senator, but my understanding is that the Financial Administration Act, under Part 10, allows the government to set up these kinds of entities. They are somewhat quasi-companies.
Senator Bolduc: In the former Financial Administration Act we had various types of corporations: the true Crown corporations, such as CN, and then we had the departmental corporations such as statistics.
It is not very clear where the money comes from. On the one side, it comes from the government through tax revenues, but on the other side? We call it a Crown corporation, but it is not a real Crown corporation because it does not have the power that you are talking about. We could perhaps lower the fees, as I will call them.
We are in a kind of straightjacket, and I know this is not the first time. There are past cases, including last year, where the Auditor General has that the government sometimes works on a cash accounting basis and sometimes on an accrual accounting basis. It depends on the circumstances.
Somehow, that hides the real financial situation. I find that embarrassing. We will have to decide what to do because the corporation would normally have an accrual-based accounting system, but the government is still operating on a cash basis, except in some aspects. That is not clear for us. The Auditor General has mentioned it many times, and last year, in his budget, the Minister of Finance responded in a very subtle way to the Auditor General.
The Chairman: They are good wordsmiths.
Senator Bolduc: They are fantastic — there is no doubt about that. Even though we criticize the minister, we know very well that he does the work.
Senator Mahovlich: Minister Collenette appeared before the committee.
The Chairman: Excuse me, Senator Mahovlich, I did not give the witnesses an opportunity to reply to Senator Bolduc. Did you have a comment, Mr. Everson?
Mr. Warren Everson, Vice-President, Air Transport Association of Canada: The Auditor General says if the law permits it and this corporation could borrow the money, then it would need to fashion its expenditures to meet market demand. If the law goes by and the amendment is not in, the corporation will not have that authority — ever.
By using the cash accounting method, consumers will not only pay in the first couple of years for assets that will still be in use 20 years out, they will pay an enormous amount in the front end of this project for no reason whatsoever, but also the new authority will not have the ability to meet demands.
To take a vivid example, two years ago there were 22,000 passengers out of Hamilton airport, but last year there were half a million because WestJet came in there and made that airport a hub. They put two machines in there and they have six agents going all day long. They carried their chequebook in and purchased the security that they wanted.
The design we are looking at now will put this new authority in a position where it cannot respond to that kind of thing. Someone will say, ``I am ready to open service in St. Hubert,'' and they will say, ``We have already allocated our resources and will not be able to put new security resources in that airport until whenever circumstances permit.'' They could say, ``If we could, we could borrow the money because the money is perfectly secure. There is no increase in the risk. There is traffic. People are paying. We could borrow the money quite comfortably.''
We do not have the statutory authority to do that. So we will just wait and do the usual government tango where resources are fought about to decide where they should go. We only need one paragraph that allows the minister the right to give this authority to the new organization.
Senator Bolduc: As a matter of fact we do not have a Crown corporation in that organization. We have a possibility of the government taking charge of some operational responsibilities in a way that is outside of the civil service. It is one way of getting people out of the civil service for jobs that are security.
Senator Mahovlich: We heard from the minister last night. You have mentioned that service and efficiency are just as important as the emphasis on security. These people are not even thinking about efficiency. When I go to the airport now, I have to arrive two or three hours before the plane leaves. I have to take my shoes off; a woman loosens my belt. It is getting ridiculous. Do these people think about efficiency? How will you get people to travel if you do not give us service? Nobody wants to travel any more.
Mr. Mackay: Senator, that is exactly our point. We want this authority to be incentivized — the management and everyone else. There is no argument about the fundamental need for good security. However, we want it delivered in a way that is as efficient and effective as possible because we do not want you standing in a line for an hour. We know what you will do if the hassle factor is too high: For your next trip from Toronto to Ottawa, you will get on the train.
Senator Mahovlich: Exactly. That is coming.
Mr. Mackay: That is coming. That is not in our members' best interests and we do not believe it is in the country's best interests. There should be a level playing field here. We think service standards and things related to it are very important.
Senator Mahovlich: Do you think there are privileged people in this world?
Mr. Mackay: I like to think not but I suspect some people have a heck of a lot more money than I do.
Senator Mahovlich: There are and have been since the Romans and way back to the Greeks. There are privileged people in this world, but everyone is getting the same treatment going through these lines. They make 88-year-old lady stand there to get her ticket and then she gets in another line-up, and sits and waits. It goes on and on.
Mr. Mackay: We want to work with the security authorities to find ways to minimize that. We are working with them now but we believe one very important part of that entire puzzle is to ensure that this authority has a governance and management structure where people care about those sorts of problems.
Senator Mahovlich: With computers, there are many cards being introduced, and Air Canada has an elite card. Why can I not get one of these cards so that I can go to the airport, show them this card, they can punch it in and there's my record and my standing. They can say, ``Okay, Frank, just go on through now.''
Mr. Mackay: We are looking at smart cards. It would have to be voluntary, because you would have to provide a certain amount of information to have a system like that.
Senator Mahovlich: That is coming?
Mr. Mackay: We are hoping it is coming. The security authorities not only here in Canada but also in other countries have not yet bought that concept. If we put in place a system like that, they are concerned — it is a legitimate concern that we would have to address — that it will become a target for abuse; that some unauthorized person will get their hands on these sorts of passes, and it will become a security risk. That question must be addressed before we take it much further, but people are looking at it.
Senator Mahovlich: In regard to amortization, I agree that it is a common business practice.
Senator Rompkey: May I ask a supplementary?
The Chairman: We are running out of time. If you want to stay here later, that is fine too.
Senator Rompkey: Can you give me an example of another Crown organization such as this proposed authority that is allowed to amortize over a longer period of time? Can you give me some examples in Canada so that we can make a comparison — NAV CANADA, for example?
Mr. Mackay: NAV CANADA is not a Crown corporation but NAV CANADA operates exactly this way.
Senator Rompkey: They are allowed to amortize.
Mr. Mackay: Yes, and they do. They spend more than $100 million on capital.
Senator Rompkey: Is that a good comparison?
Mr. Mackay: It is a very good comparison, because NAV CANADA provides an essential air service. It is very much security related and all those kinds of things. When the government was debating before the budget how to set this up, that was the model we proposed to them. It collects its revenues and that is where we would like to go.
Senator Comeau: I would like to come back to a comment made by my colleague Senator Kinsella about the fundamental policy that this seems to be establishing. Last night we heard from two ministers — both from Toronto — who can take a flight every hour on the hour from Toronto to Ottawa or to anywhere they want to go. They were able to present their bill to a growing number of urban members in the House of Commons. If you look at the recent census, rural areas now comprise only some 20 per cent of the population of Canada, so obviously the political clout of rural members in communities is on the decline.
These two ministers were asked this question: Did you do any kind of a study on the impact of your decision on smaller communities? I mentioned a few such as Kuujjuaq, Îles de la Madeleine, a place called Sandspit, British Columbia, which I had never even heard of, and Waskaganish. They said, ``No, we did not do a study. We just went ahead and did it.''
I know Yarmouth, Nova Scotia quite well. Minister Collenette doubted that there would be a passenger decline. He said that they could add on to the price and passengers would continue flying out of Yarmouth. I do not buy that; I am almost certain that passengers will no longer use Yarmouth, or use it in fewer numbers.
Another concern is the fact that the cargo space on that Yarmouth flight also carries lobsters and other fresh fish that are flown out of Yarmouth. If the numbers go down to the point where we lose the airline, there goes the cargo space for fish. This, in turn, affects the fishermen who may not be flying out of Yarmouth but it impacts their products. It impacts the plant workers. It goes on to impact the carpenters in the region.
In other words, it affects the entire economy. If the community does not have an airport, it makes it a much less attractive place to want to move to. I did not receive any real indication from the two ministers from Toronto that this tax would have this impact. I have only given one example of Yarmouth.
What about all these other places? Have you as a group tried to pass on this to the minister? I saw that you did say that if there is a 1 per cent increase in price, that you have a 1 per cent to 1.8 per cent drop in demand. They do not seem to understand that point yet.
Is this where we are heading as a country? Are we going to be a dog-eat-dog, urbanized Canadian society and forget all the areas that Senators Rompkey, Cook, myself represent? Might we all move to the bigger cities such as Halifax, Montreal and Toronto?
Mr. Mackay: The entire question of the viability of air service in small, thin markets is a real problem in Canada. It has been a problem historically because of the nature of our country and our geography. It is something that currently needs more focus from a public policy point of view. We have raised it from the point of view of viability of small airports with the government for a number of years now. We have also told them that we are concerned about air service levels. The new security charge will make that problem tougher, not easier. It will make it harder.
The Chairman: Thank you Mr. Mackay and Mr. Everson.
Honourable senators, I welcome Mr. Martin Taller from the Association of Canadian Travel Agents and Mr. Randall Williams from the Tourism Industry Association of Canada.
Mr. Taller has prepared an official presentation in both official languages. Mr. Williams is filing a brief in both official languages with the committee. I will see that that is circulated, also.
Please proceed.
Mr. Martin Taller, Board Member, Association of Canadian Travel Agents: Honourable senators, with me is Mr. Randall Williams, the president and CEO of the Tourism Industry Association of Canada. Mr. Williams will assist me in answering any questions. His brief has been given to the clerk.
The Association of Canadian Travel Agents, ACTA, which represents approximately 4,800 travel agencies from across the country, is pleased to have the opportunity to raise our concerns with Bill C-49, the budget implementation act. We would like to focus on the air travellers security charge, which we believe is a poorly considered new tax about to be imposed unfairly on the Canadian travelling public.
Along with the vast majority of Canadians, ACTA recognizes that in the wake of September 11, the government had to act promptly to strengthen security at crucial locations across the country — especially at airports, which are particularly vulnerable. The effective screening of air passengers and their baggage had to be enhanced. At the same time, everyone realized that it was no longer appropriate to leave these security measures in the hands of the airlines. The state had to intervene.
This leads us to our first two criticisms of Bill C-49.
First, ACTA believes that the costs of providing this service should be paid out of the consolidated revenue fund. Sections 6 and 27 of the new Canadian Air Transport Security Authority Act make it clear that the screening service is a fundamental government responsibility arising out of the need for public safety. It does not make sense, therefore, that only certain persons are charged with paying for the service. Are the costs of providing municipal police services to be recovered on the basis of the streets that are actually patrolled? Everyone benefits from public safety, not just a few service users, especially when the threat to public safety is in the form of terrorist violence.
Second, we wonders why the government felt it necessary to create a new Crown agency — the Canadian Air Transport Security Authority. Could its mandate not have been given to the Royal Canadian Mounted Police or to one of the existing transport agencies? In addition to the costs of putting in place a new bureaucratic structure, there will be the problem of coordinating sensitive information and activities among law enforcement agencies.
I would like to turn now to the specific terms of the security charge. The amount of the charge — $12 one-way or $24 — return appears arbitrary or to have been arrived at through a simple method of calculation. Did the government carry out a study of what appropriate security enhancements would cost at each of the 90 airports listed in the announcement of last December? How was the revenue stream to be generated by this new charge matched with the estimated costs?
The amount of the charge is also unfair in that it is imposed as a flat rate, across all types and length of trips. Travellers on short-haul routes will have to pay the same amount as long-distance travellers. Relatively speaking, they will have to pay more. From a public policy perspective, this bias does not make sense. It discourages smaller airlines from competing with Air Canada for local and regional markets. It also hinders the development of efficient and inexpensive air commuting services between centres such as Calgary and Edmonton, for example, as an alternative to the bus and automobile.
The anti-competitive bias of the charge does not only operate at the local level. Within the larger North American context, it is a signal to the business community that Canada is a jurisdiction that is only too happy to tax its more mobile citizens. This charge runs counter to Canada's productivity agenda. It also runs counter to the $15 million the government announced last fall for an advertising campaign to encourage travel.
Long before September 11, ACTA had complained about the number of additional charges that appear on a ticket. Over and above the provincial federal taxes, to which consumers are now resigned, there are airport fees, NavCan fees and fuel surcharges, all of which are added to the advertised fare. Travel agents believe that these people fees are part of the cost of service. Consequently, they should be factored into the price of the ticket to give the consumer a truer picture of the cost of travel. By the same token, security costs should not be presented as if they are an option like paying extra for insurance when you rent a vehicle.
Finally, there are huge administrative problems in implementing such a tax. What constitutes a stopover or a break in journey that would trigger the imposition of a second security charge? How will the tax be collected outside Canada? Will Canada Customs and Revenue Agency issue refunds, and on what basis? Can the computer reservation systems be programmed to accommodate all the variables?
Making matters worse is the fact that there is very little time to put the required central reservation system and collection procedures in place. The legislation comes into force on the day on which it receives Royal Assent or on April 1, 2002, whichever comes first.
In conclusion, while appreciating the constraints that the Senate is under to pass this bill expeditiously, ACTA on behalf of a hard-hit sector of the economy and the air travelling public, would like to make two recommendations. First, that clause 5, proposed section 11 of the bill be amended so that the charge only comes into force on September 1, 2002. This will allow the government and all stakeholders more time to work out the financial and administrative implications on both the revenue and expenditure side of this new tax. This makes more sense than rushing in to implement the charge now and then having to undo the mistakes in the fall, at the time of the government's promised review.
Second, that proposed section 33, clause 2 of the bill be amended so that a review of the provisions of the new authority will be completed during the third year of its operation, instead of during the fifth year. This will signal to the travelling public the exceptional nature of the security measures.
Senator Comeau: I have raised the subject with other witnesses in regard to the impact on smaller airports of the new tax. I noted that you mentioned the route from Edmonton to Calgary. There are many other areas in Canada; I named a few earlier on. The minister said he saw no cause to worry. He proudly listed all of the taxes that now appear on the ticket and stated that they were no bother to the traveller. He mentioned all the ones you mentioned here and suggested that another tax will not be a bother.
I find it difficult to believe that the travelling public would not be impacted by this extra charge. I know the government said that it had not done any kind of impact study on our small communities. Have you had a chance to see how this tax would impact on the communities?
Mr. Taller: From a trade association perspective, we have not had time to do the studies. We have support from WestJet Airlines as an example that runs that route from Calgary to Edmonton who would be impacted significantly by the tax. However, I would refer that question to Mr. Williams.
Mr. Randall Williams, President and CEO, Tourism Industry Association of Canada: Senator Comeau, I heard your comments earlier, and I fully agree with you. First, there is a general, common good and a universal right that Canadians have in expecting security and safety. We should not be penalizing travellers or a select group to ensure safety.
This tax will actually be a net effect to the government of actually taking more money out of the system than they will actually derive. I should like to give you a sense of why we need to have a study on the impacts of this tax.
Most people will agree that this tax will derive a minimum of $2.2 billion over five years — about $440 million a year. Some suggest it will derive more money than that. The tourism industry in Canada represents $54 billion in activity and sales.
The $24 surcharge represents a 4 per cent to 5 per cent increase in the cost of travel. As was said earlier, most people recognize that a 1 per cent increase in tax has a negative effect of 1 per cent to 1.8 per cent in sales. Most studies I have seen agree with that. If we assume there is a 4 per cent or 5 per cent decrease in travel because of this tax, the effect could mean a lost of $2.7 billion in Canada's tourism industry.
Another fact is that every dollar in tourism expenditures brings 30 per cent to the government. For every $1 that is spent, 30 cents go into government coffers as a chance. If you drain $2.7 billion out of the system in a year, 30 per cent of that represents $810 million less to government.
Senator Bolduc: It is more than the tax.
Mr. Williams: The tax will give you $440 million. What you have here, honourable senators, is a tax that will take out of the system double what you are withdrawing from it.
Even if we overstate these figures by double, it would be a break-even proposition. We are saying the tax is in the system; let the industry alone. Do not be punitive against the travel industry because the terrorists decided to use an airplane as a weapon. What if they had decided to use food processing as a weapon? What if they decided to use utility companies as a weapon against Canadians or Americans?
Security and safety is a right, a common good we should all get. We should not do it for all Canadians on the backs of travellers. That is our message.
Senator Comeau: I will leave the question of the communities aside for a moment — even though this will impact on smaller, rural communities. It scares me that no assessment was done of what will happen to those communities as we close off these little airports all over. I would imagine that people would begin moving to Halifax, Toronto and Calgary.
I would like to discuss the $2.2 billion figure. My understanding is that this figure was plucked out of the air one fine day. As indicated, they had to move very quickly to assure safety to Canadians. Other than the cost of the machinery that must be put in place over the next several years, have you been given any kind of a breakdown on this $2.2 billion?
Mr. Williams: Mr. Everson may better answer this question, but we have not seen a breakdown on how the $2.2 billion is proposed to be spent on security.
Senator Comeau: Are there no marshals, or do we just not know?
Mr. Williams: The government has said that Canada is well ahead of the U.S. in the security provisions at airports. Here we are, not being attacked, as a country ahead of the U.S. in our security provisions, and we are putting in a $12 fee and the U.S. is putting in a $2.50 fee. They can do that because the cost is shared among the government, the traveller, the airports and the airlines. They are not necessarily agreeing with that proposal, but there is an understanding that there is a shared responsibility. In Canada, we place the weight entirely on the traveller.
Senator Comeau: I asked a question last night of one of the ministers and the financial official indicated that they had done their estimates of revenue based on 2001 traffic figures less 10 per cent. My understanding is that we have now gone above that figure. That means that there will be much more revenue coming in than what was estimated.
Have you done any kind of an estimate of the revenues that will come in?
Mr. Williams: We have not done an estimate of the revenues. The number of 10 per cent is fair. Right now, we are projecting for 2002 that air travel will be down 10 per cent compared with 2001. Those numbers are consistent with our belief. I do not know how they arrived at those numbers.
[Translation]
Senator Ferreti Barth: My question is on the new airport tax. I represent 15,000 seniors who believe that the added charge is excessive.
Seniors and retirees make up a large part of the travelling public. Many of these people travel for pleasure and will continue to do so. Several things might happen. For example, because of the new charge added to the price of a ticket, travel agents might offer discounts to seniors, or many people might choose to travel by car rather than by plane.
But seniors are more likely to continue flying because they feel more secure doing so and it saves them time. So they are the segment of the public that is most likely to bear the brunt of the tax.
I agree with the amendment to delay the implementation of the new tax until September 2002. In my opinion, April 1 is too early and I cannot accept it. Would your amendment allow seniors to get used progressively to this price increase?
[English]
Mr. Taller: The relationship that the airline industry has with its passengers is very much a love-hate relationship. The way the tax is being put on the ticket is confusing to the average consumer — especially to senior citizens.
The airline industry and the computer reservation systems have evolved to provide the services for them are just not ready. It will be highly confusing and difficult to implement. We would like to see September 1 as an opportunity for this tax to be implemented if it has to be implemented in the way that it is. The industry needs time to ramp up and provide the service to consumers in the way they expect to be serviced.
Senator Bolduc: The tax begins when the bill is passed at the beginning of April. However, we are not sure that the security systems will be in place, although the airports are supposed to be included in that. In one way, people will pay for a non-service. I have difficulty with that. I agree with you that we could put in place the structure and then begin the tax in September.
Minister McCallum said yesterday that as this event happened suddenly, they had to move quickly. This is the result. However, he said that he is open to a review in the fall of this year.
You suggest the review should occur in the third year of the five. The five-year period for review is a standard thing in Crown companies. I do not think we can change that. Frankly, the Auditor General must do his job.
The minister said that he would look at things that happened that were not forecast in the fall. I would suggest that you keep very much abreast of this matter for the fall. The minister seemed to be very flexible about various things, including the rate.
Senator Comeau: They are realizing there are some problems.
Senator Bolduc: They realize that. I think that, in the fall, they will be fairly flexible on the rate and some other factors. However, I am not defending the government. That is not my role here. However, we must be fair.
There is an obvious thing: If you raise the price in that type of business, obviously the demand will fall drastically.
Senator Comeau: Airports will close.
Senator Bolduc: Airports will close in the short haul, in particular, and in some other aspects as well. Mr. Williams made the point about decreased revenues having an impact on the government. I encourage you to be cognizant of that in the fall. I am sure that it will be a mess for the next six months. There is no doubt about it. I asked the minister yesterday if he would be ready. He said, ``Yes, we, are ready.'' Having been around the public service for 45 years, that response made me laugh.
The Chairman: Mr. Williams, is your association supporting the amendments proposed by the travel agents on the final page of their brief?
Mr. Williams: For the most part, we are. However, we think there should be some mitigation of the damage that will be caused. Our association is opposed to the tax, period. We feel that the safety and security of Canadians should be paid for, as Canadians expect, out of their tax base. That is what we are in favour of.
The other recommendations that are being made are really compromise solutions that we do not feel should be considered. We feel the tax should be removed, period.
It is our hope that, as the Honourable Senator Bolduc suggests, the government will see that this is a wrong step; that they are actually netting out less than if they had left the system alone. They will have less tax than they actually are deriving from the surcharge.
The Chairman: Thank you both, very much.
The committee continued in camera.