MR. KERRY MORASH (Chairman): I will call this meeting to order. Thank you very much to our presenters today for coming, Father Greg MacLeod and Mr. Chris Payne. Before we start the presentation, I would like to go around the table and have the members introduce themselves and identify their riding. We will start with Mr. Chipman.
[The committee members introduced themselves.]
MR. CHAIRMAN: With that, I guess if you would like to begin your presentation.
DR. GREG MACLEOD: First, I would like to say why I am involved in the kind of thing I am involved in.
MR. CHAIRMAN: Excuse me for a second. It would be better if you could sit down, just so the microphone could pick up what you are saying.
DR. MACLEOD: Oh, sure. You just feel more powerful when you stand. (Laughter)
MR. CHAIRMAN: Sorry about that.
DR. MACLEOD: Anyway, I am involved in economic development and have been involved in economic development for many years, not only in Nova Scotia but in Newfoundland and in other places, in Mexico and even in the Yukon. I have found that there is a pattern in Canada and in many places that a few centers will develop, main metropolitan centres, and outside of these centers you have a terrific drain, a brain drain and a capital drain. It is a vicious circle. The more you lose your bright young people, the worse the economy gets. The more you lose your capital, it gets weaker and weaker. That is a pattern across Canada.
If you look at unemployment rates, you will see that in Halifax, Montreal, Toronto, right across to Vancouver, they are pretty much the same, around 6 per cent or 7 per cent. If you look at northern Ontario, Gaspé, northern New Brunswick, Newfoundland, Yarmouth, Cape Breton, you will find they are around 20 per cent. I would say let's recognize it as a problem. It is not something particularly wrong with Newfoundland or Cape Breton or Yarmouth, whatever small parts of Nova Scotia we look at, it is a problem and normally when you have a problem that is systemic, a pattern, it is up to government to come up with a policy to correct that problem.
So I am addressing this problem, brain drain and capital drain. I was very interested in Dr. Hamm's remark to Central Canada and I am in complete agreement with him. There is an unfair imbalance in Canada. The main, central part of Canada and the marginal provinces is precipitated by gas royalties but it is a serious problem. I say, what is sauce for the goose is sauce for the gander. We have the same problem within Nova Scotia. We have a strong center and the smaller parts of Nova Scotia are running down. So just as we ask for equity in Canada, we should ask for equity in Nova Scotia.
Halifax is booming. The unemployment rate is usually under 7 per cent. Other parts of the province are close to 20 per cent. So with regard to this uneven, unfair distribution of growth and development in the province, it weakens the province as a total place. So I propose there should be a general review of all government-controlled economic resources with a view to correcting this imbalance. While this should involve an analysis of what government departments could be relocated, I suggest that all existing programs should be analysed regarding how much is spent in different parts of the province. For instance, the Arts Council of Nova Scotia spends only 6 per cent of its budget in Cape Breton. I can see for years government in Halifax said we can't get these call centers to go to Cape Breton because you are not sophisticated enough and the companies won't move there. They want to go to Halifax where there is a lot of high-class, technical infrastructure.
Well, it is the same thing in culture. Of all the things we have, I would have thought in Cape Breton is music and culture, you know. Maybe that has slowed down business growth because we spend too much time fiddling and dancing and singing but when I see that, that the vast majority of the cultural budget goes to Halifax - not that I am against it, I am not against Toronto, I am not against Montreal or Ottawa - but it is just unfair. It has spin-off and everything.
I am proposing Nova Scotia should be viewed as composed of three socio-economic zones: Metro Halifax, Mainland Nova Scotia and Cape Breton Island. I want to suggest that many programs suit Metro Halifax and they don't suit the rest of Nova Scotia. So I say there should be set programs for the metro region and other kinds of programs for the non-metro regions. For instance, Halifax has a very serious affordable housing problem. It is a shameful situation, people living on the streets and they can't afford the kind of housing with the high cost of real estate. The housing problem is not our main problem in many other parts of the province so I would say, I would accept the province putting in a subsidized housing program for Halifax. We don't mind that because that is characteristic of the metro area where we have rising costs of real estate.
On the other hand, our big problem is capital. We can't get investment in the little places. So I would say the province should orient any kind of help for investment in little places. I say Halifax doesn't need that kind of help so I would say investment programs, tax credit programs for the non-metro areas but not for Halifax. You don't need it in Halifax, it is booming business, but you need it in the other places. So I say one set of programs for the metro area and another set for the non-metro areas. That would make sense. Very few programs suit equally a metro kind of socio-economic situation and the smaller places.
Right now we need a catch-up strategy based on what I have just talked about. Some of the things I am suggesting, and I am pleased with the government tax equity program for community investment groups, which we are. I think it should be enhanced. It is focused on non-metro areas which is as it should be. I don't think you need this kind of program in metro Halifax because you have the conventional business investment systems operating.
I think the tax credit should be raised to 40 per cent in the non-metro areas of Nova Scotia. Newfoundland has a similar program and they have 35 per cent. The labour-sponsored funds, right now, well they have both federal and provincial. In this program we don't have any federal, it is just provincial. If there was a way of getting federal participation in this, it would be fabulous; some way that we could get both a federal program and a provincial program matching the same way we did in the labour-based funds, where we get a federal tax credit and a provincial tax credit.
This program is, I think, very important. It is too young to see how it is really working. It takes a while because we have a great deal of difficulty selling ourselves to Merrill Lynch and RBC, the various companies; they just don't want their customers to invest with us. I think that should be a government policy question. You know, $2 billion leaves Nova Scotia every year in investments, a drain. Very little comes back in investment. The doors through which they go are mainly investment firms and they tend to invest on the stock market, your mutual funds and various sorts of investments. They are really stock-market-based and they don't have any particular interest in Nova Scotia or any particular area.
I think that the investment firms should be encouraged and pressured to facilitate their clients' investments in Nova Scotia. It is extremely difficult for a client of any major investment firm to have their funds diverted back to Nova Scotia. You have to twist arms and fight with them; we have had to fight with them. We are not happy yet, but we are hoping the government should be able to encourage these investment firms.
On a general thing of capital and movement, I think there should be tax-free business zones. They have them in Prince Edward Island for areas of high unemployment. They have them in Newfoundland. They have them in every jurisdiction, I think, in Canada, maybe everywhere in the world, except Nova Scotia. I want them to be mainly payroll tax credits. The payroll tax credit, the type given to Sobeys, is a good idea. I favour it as long as it is offered to any company coming to an area of high unemployment. For us in Cape Breton and in Yarmouth, areas like that, it would be tremendous if we could go shopping for companies to come to our area and say, hey, we have a tax-free zone here, especially this payroll tax credit. So if you hire our people, you get the tax credit.
This is a little outside but it is connected. These programs, you can't put the money into real estate; any money we raise, we can't put it into property. Our coal mining towns have suffered through depletion. I suggest to compensate for this, that the Government of Nova Scotia set up a mortgage fund, a low-interest, maybe 2 per cent mortgage fund for mining towns such as Westville, Stellarton, Glace Bay, Inverness. Most of these towns look the same. Their cores are deteriorated, these mining towns, and remember, for about 50 years - I don't know if is 90 per cent but - I would say 70 per cent of the budget of Nova Scotia came from royalties on coal. So there is a little bit of payback time here. What we are seeing in these coal mining towns, plywood on the windows, that doesn't help in getting business going.
We are onto this program of investment but we see in the smaller areas a lack of business support. Now you have a provincial agency like Innovacorp whose mandate is to assist business. So we would like to see that Innovacorp put more of its energy into the non-metropolitan areas of Halifax. They have 100 employees. I don't see why they couldn't be divided among the three zones, because the businesses we are dealing with are weak technically and Innovacorp would be important, these kinds of bodies.
Now I have been talking about capital but the other kind of drain, the brain drain, is just as important. I would like to see some kind of a special tax incentive for businesses to attract technical people to the smaller places. The Quebec Government did that for the Gaspé area to try to give companies tax incentives to hire technical people to move to that area so that they could compete in the new kind of economy.
Programs such as tourism, culture and museums, could easily be divided between the three provincial zones.
Then the final thing about education, every study made shows that economic development is related to educational levels. The educational level of the Halifax area, metro, is much higher than the educational levels in the outlying regions. So there should be a special catch-up program, support to raise the levels of education in all these areas.
I will stop here and invite questions.
MR. CHAIRMAN: Thank you very much for the presentation. Mr. Downe.
MR. DONALD DOWNE: Thank you very much, Father Greg. It is good seeing you again. You are just as powerful sitting down as you are standing up. Well, maybe not quite. I have seen you in full flight before, actually.
DR. MACLEOD: I can't wave my arms. (Laughter)
MR. DOWNE: I want to compliment you on some of the initiatives that you talked about. In fact, back in 1999, which is not that long ago, we brought those initiatives forward in a budget. One was called enterprise zones, the tax initiatives for the two economies, or you say three economies, we have in the Province of Nova Scotia. What fits for economic development in Halifax, or the requirements of economic development in Halifax, are different than that of rural Nova Scotia or Cape Breton. We actually brought forward an initiative that would give a tax benefit for companies establishing in an area other than Halifax. So it is a tax incentive for that purpose.
Also, the issue you talk about, payroll tax credits was another initiative that we had brought in. I think it was back in 1998 or 1999 when companies would actually show that they had created jobs. After they created those jobs they got a tax credit for the employment side of it. So there was an incentive that way, vis-à-vis upfront. So that was actually showing a benefit. That was a little bit, I think, similar to what is being done with Sobeys. So I compliment you on that.
I guess my question, two fronts, in viewing rural sociology - and I think to some degree you have been doing that most of your life - when you see a community coming apart, breaking down, losing the brain drain, as you call it, the infrastructural drain, the capital drain and you talk about initiatives here from a tax point of view to resurrect it, there is more to economic development than just tax credits. There is the whole issue of how a community binds together and fights for its survival. Can you talk a little bit about what role government should play in helping communities foster sustainability in areas that are going through tremendous economic crises or depletion of opportunity? You talked very articulately about the tax initiatives. What about some of the other initiatives that government should be looking at to go forward?
DR. MACLEOD: Well, look, something I have spent my life on is working with volunteers. Now the volunteer movement works best in non-metropolitan areas. I think you will find this all across Canada. If you are in northern Ontario, it is a lot easier to get a volunteer group together to work for nothing on projects. Toronto is very difficult and I would say in Nova Scotia, the same thing. It is more difficult in Halifax than it would be in Glace Bay or Yarmouth or Liverpool to get a bunch of volunteers to work for nothing. They are characteristics.
So, it is only recently that governments have come to recognize that you can have volunteer-based businesses. I am involved in New Dawn, as some of you know. New Dawn is a volunteer group; nobody is paid. The board isn't paid, and New Dawn has never received any government grants. We have 175 employees, a payroll of around $3 million a year, and a variety of initiatives. It would have helped enormously if the government would have rented property from us, if the government would recognize that some of its regular programs - they
are going to rent from somebody. Instead of renting from a privately-owned business, if they say, we give preference to community-owned businesses because I have a little bit of experience in real estate. New Dawn, if we had a contract from the government, we could build a building 20 storeys high if we had the contract because we know how to build, we know how to manage, we know how to do all those things. So that would be a very important thing. When government rents property, to give preference to community-owned businesses, that is not a grant.
Also, the other thing is, in getting a business going, and it is not just our business, but the private small businesses that we invest in, the hardest part is getting your first contracts. I believe that in some jurisdictions government has given preference to, when they give a contract, say, to do some software development, that they would, say, give a preference in contracting to an area of high unemployment. So government in its regular programming, can give a preference.
Another one is location. For instance, this is cultural. In Nova Scotia we have the College of Art and Design, and they do all the regular art things and then you have another institution that is the Nova Scotia designer craft centre. That is right next door to the College of Art and Design. I am saying why in the world couldn't you spread that? Government has a policy, say, you have this art college there, why not have the art centre somewhere else? Or museums, it is only this year that we had a museum funded in Cape Breton. All the Nova Scotia museums were somewhere else. We are old in Cape Breton. We have a long history, the 1600's, and a diverse culture.
Anyway, government, it is not what I suppose, Don, what you are referring to, I think the investment equity program is fundamental and essential and it should be strengthened. It is not enough alone. They don't work alone. We need other sorts of support going and that is why my suggestion, all government programs should be reviewed. Manitoba had a minister of rural Manitoba, that meant all of the area outside Winnipeg and they did little things, for instance, your book depot, your school books, it was in Winnipeg. It involved about three people. So the Government of Manitoba took the depot and moved it to a little town. That meant that the depot rented space in the little town. Three jobs in a little town meant a lot. It didn't mean anything in Winnipeg. Nobody even noticed it, the government, the minister, nobody noticed losing that in Winnipeg. The Government of Winnipeg made a policy of reviewing programs to see what could be changed or helped for the little places and they didn't kill the capital City of Winnipeg but there were a lot of things that didn't hurt too much and the real estate people in Winnipeg didn't go bankrupt for a few of these little things but they made a big difference in little places. I don't want to talk too long. Is that the orientation? It is to review all of the programs.
Look, I want to refer and I must, I usually criticize government but I want to give credit where it is due. The Minister of Tourism and Culture, the Honourable Rodney MacDonald, I have been criticizing the cultural thing over the years, centralization of all cultural monies in the province and I wrote a rather saucy, critical letter to your minister and he responded with complete information. It is the first time in my career - 25 years I have been criticizing - that a minister of government gave me information, who gets what, the whole program. So that is why
I said I can tell you that only 6 per cent of the money from the Nova Scotia Arts Council went to Cape Breton.
I would say it is not just Cape Breton. I have been looking at the other little places in Nova Scotia so that is why I am making it three zones, not just Cape Breton. I think that when you start to look at the spending, many of the smaller places are disadvantaged, I would say.
MR. CHAIRMAN: I would just like to recognize Mr. David Hendsbee and Mr. Mark Parent who have joined us. I think, Mr. Corbett, you had the next question.
MR. FRANK CORBETT: Father MacLeod, how are you today? Greg, I want to ask you something more about an article you wrote some time ago, probably back in early January talking about technocrats. Probably the idea of economic development is hub and spoke. I think a lot of them do. Can you explain to me what you see as a technocrat and how does that impact positively or negatively in your terms on rural and small communities?
DR. MACLEOD: Again, it is not just Nova Scotia. I have been fighting with people, I suppose, for many years. I studied in Europe so I saw in Britain what they call the growth bowls, government technocratic plans to create new kinds of centres and have people move. In England they said there are places non-economic so they moved the people around. I visited some of those places and I come back to Nova Scotia and behold here in Halifax they are having meetings for the growth centre concept.
So by technocratic system, I mean that government decisions and government strategies are determined by experts, consulting companies, legal firms, accounting companies, university specialists who have theories about how a society should be developed or how you measure growth and development or what should be done. So they would say by concentrating the business in one place, you get economies of scale so that by dispersing companies through all the little places, you weaken the economic growth of the province. So I say these are technical, academic, scientific understandings and studies. I would say the Government of Nova Scotia has been largely influenced by what I call a technocratic elite. They are not bad people. I am not saying they are evil or anything crooked or anything like that but they have an understanding of what is best, what will help the province.
I am saying that politicians are elected. Politicians, generally, are typical citizens. There might be a housewife, a lawyer or a coal miner, whatever. They come into government and all these plans are made. I am saying I have argued with Cabinet Ministers over the years and they say, well, God, the plans are made. If I oppose that it will be extremely complicated, we might be sued by lawyers and I don't know what. So I agree with what you said but it is too complicated for us to change.
So I am saying we are faced with that and that politicians have very little control over the machinery of the modern government. It is a problem, I would say, technocratic decisions. I am saying the danger of this is maybe the technocrat is wrong, maybe they are not as smart as they thought they were. We find that economic theories come in and they are like styles in
clothes. There is a certain theory that is held for maybe 10 years or 20 years. I will give you an example of that growth centre in England, what they call the growth bowls in England. Nova Scotia adopted the English approach, in fact, Nova Scotia brought experts from England. I was at meetings here in Halifax when these people from England were here.
They closed little places and they moved people into what they called, new towns, huge apartment blocks, like they did with the people from Africville. What they found was everything was cleaner but socially they got much more juvenile delinquency, you didn't have places to socialize and all kinds of other costs went up. It looked as if you were saving money but then when you looked at all the social impacts, a lot of people who studied that in England said, in the long run you were losing money. It would have been cheaper to leave the people where they were. Their houses may not have been very nice and they may not have had everything up to scratch, but the social structure supported people. People fixed their own houses and did their own repairs. Someone on $12,000 a year can survive in the little place but they can't survive in a large metropolitan centre. Anyway, I hope I didn't ramble. That was supposed to answer the technocratic thing. I suppose there is some kind of balance, you need technocratic people.
This isn't any one particular Party - Conservative, NDP, Liberal - it is, can politicians, political structures, be strong enough to direct government. I am raising in my little bit of a paper, there is a problem, an imbalance. I put great value on culture, social relationships, family relationships, traditional kinds of values in little places. Some people say, you want to keep people down on the farm, you want to keep them ignorant and you don't want them exposed to big city life, you are holding them back. I say maybe it is the opposite. Maybe the people who go to these large centres get brainwashed and maybe they lose a lot of their culture.
I am very proud that our musicians - and now we see it in Newfoundland - are winners of so many awards and on hit parades in Australia and Britain, our own musicians from the little places. I think we might get a cultural shift to value again what goes on in smaller places in Nova Scotia.
MR. CHAIRMAN: Mr. Epstein.
MR. HOWARD EPSTEIN: I actually have a question for Mr. Payne, I wonder if he could help us out with something here. You heard the presentation and there were a number of suggestions for ways in which the provincial government might act in order to attempt to promote development in parts of the province that are clearly in need of it. Some of them involved things like low-rate mortgages, some of them had to do with education, some of them had to do with tax credits, enterprise zones and things like that. What I wonder, if you can help us out with, is this, I am not sure to what extent programs of this sort are allowable under GATT and NAFTA. What I wonder is - if you can help us out, I am sure your department has thought about this - if you can summarize for us or if there is a paper that the department has that it works from? The presentation we heard is hardly the only one that we hear that makes these kinds of suggestions, they are sensible and tempting but I am never certain to what extent it is allowed to go forward. Can you give us an idea of what it is that is allowable and what isn't allowable?
MR. PAYNE: A very interesting question but not one that I think I am extremely suitable to respond to directly. I guess the analysis of what is allowable under GATT and under NAFTA or under GATT even with the accounting, certainly for most of the things Greg is talking about they wouldn't be impacted by that anyway because they are not dealing with export-type industries, it is all indigenous industry at home. For some of the other items that Greg talked about, anything particularly that relates back to the CD Investment Funds and Equity Tax Credits and the raising of capital, in those there certainly are some roles that Greg alluded to that the government could have some significant influence on. Certainly if I had a chance to play it one of the things is the investment dealers - and anyone who happened to catch Information Morning on CBC yesterday, they had the Investment Dealers Association representative on first and then I followed on. Some of the comments Greg made about getting the investment dealers onside to sell their clients on these funds, they are doing quite the opposite.
The money that is leaving the province, as Greg said, is in the billions of dollars every year and most of it is leaving through the hands of the Investment Dealers Association. To somehow exert some influence over them to participate more fully in doing some local investing, some community investing and to stop putting so many roadblocks up, stop advising their independent advisors not to participate in this venture. So I certainly think from the specifics to this particular program, there are a lot of things that could be done on the government side, larger than certainly from our office, larger even than Economic Development, I think, would have to be a full government push, sort of what you have here, tri-Party, that we would influence the Royal Bank or BMO Nesbitt Burns that this is a good thing to do and that they should come on board and participate with us.
MR. EPSTEIN: Does the Department of Economic Development have an analysis of what is allowable under NAFTA and GATT?
MR. PAYNE: I don't know but certainly I could get back to you on that.
MR. EPSTEIN: That would be a big help, thanks. If I can ask Father MacLeod, your point H which has to do with a 10 year intensive education program, I was quite curious about that. I was just wondering if you could just explain how you see this working?
DR. MACLEOD: I had the experience - I hate to say when, but it was actually - in the 1970's, 25 years ago. When we cut back in the coal mines, one of the programs introduced to us was to educate the unemployed coal miners, when they laid off miners. They gave them free tuition to UCCB and gave them some sort of a living allowance. What was remarkable was so many of these guys had Grade 7 or Grade 8, they were people who had left school, sometimes out of necessities at home, at a young age and worked in coal mines and then they were laid off and came to the university. We made a special program so as mature students they could start - we had a little bit of a catch-up thing and I taught them. The first year they were behind the young students but the next year they jumped ahead of the young students. They didn't have a high school education and they were making better marks than our high school students. A lot of it was being mature, they had a lot of discipline.
A lot of these people went into social work, into teaching, they went into business and all sorts of things. After that experience I thought our unemployed - we have laid off coal miners and laid off steelworkers - it doesn't matter how old they were, there should not be an age barrier. If someone is 50 - to me that is young now - they should be able to study. I would say this is a program that should be used in areas of high unemployment, where you have people home. Socially, it is extremely important if you have been a worker earning for a family and you are out of work at age 45 or 50, you are sitting around the house, hanging around the street corner, it is debilitating, socially bad and I say very dangerous for a society.
I would like a very open program to let people choose what they want to study. Fiddling, welding, hairdressing or whatever the thing is, I would leave it to the client to figure out. We have been doing too much of this where a government body figures what everybody should study. I say let the client figure it out.
There are a number of studies; there was a report card the United States did in the early 1980's where they studied all of the states, the ones that gave grants and subsidies to industry as a strategy and others that developed education programs as a strategy. Almost across the board the states that pushed on education, over say a 10 year period, made more economic advances than those states that relied on grants.
MR. EPSTEIN: I agree with you, I think the investment in education is the most important investment the government can make.
DR. MACLEOD: And there are lots of empirical studies backing that.
MR. EPSTEIN: Was there, in fact, any study on what happened with this group of people you talked about, who actually benefited from that particular program?
DR. MACLEOD: I don't think. I just personally know a lot of them. We didn't have any bad reports, we had all good reports and some of them stayed with the companies and became senior management. Carl Turner was one of them.
MR. EPSTEIN: Those who finished the program, did they stay in Cape Breton?
DR. MACLEOD: Most of the them stayed. Some went away but most of them stayed and I think that is important. Your tax thing, NAFTA, I have a little rundown on Ireland because if anything is permitted in Ireland, it is permitted in Nova Scotia, they are under GATT too. I also have something on Corsica where the European common market allowed a tax-free zone in Corsica, France gave it, because of the high unemployment in Corsica, a package of all kinds of tax holidays and everything and there was no problem with GATT. With all these sorts of things we are talking about, the problem isn't GATT, it is our own internal policy.
I don't think it is a political problem, I think it is a technocratic problem because the model for Nova Scotia that is being used, and it has been said time and time again by officials in the provincial government, they want to copy Cambridge, Massachusetts, where you have Harvard and MIT and around those you get all kinds of high-class, high-tech industries. By concentrating resources in one place, you get all kinds of growth. So I don't think it is GATT or anything like that, I think it's fundamentally a political question.
MR. EPSTEIN: I wonder if you could identify for us any economic areas - by which I mean sectors - of developing strength in Cape Breton. Surely, UCCB is a great, invaluable addition to the community and there is kind of a high-tech incubator entity in Sydney - I am sorry, I don't remember its name anymore . . .
DR. MACLEOD: Silicon Island.
MR. EPSTEIN: Thank you. Those are the ones that I am aware of, but are you aware of others that show promise there?
DR. MACLEOD: I want to make a point about the service sector. In the 1970's part of the growth centre plan by the Nova Scotia Government and the federal government was not to have service industries in Cape Breton, to have primary and secondary manufacturing, so they subsidized General Instruments - some of you remember that company. We tried to get service sector companies going, but governments said no, planners said the service sector will be Halifax; Cape Breton will be manufacturing. Everybody knows all the statistics, that all job increases are in the service sector, not in manufacturing.
I would say government policy on that killed us as far as job creation was concerned. I would say in the areas outside metro, the service sector should be promoted, the general service sector, because that is labour intensive. That is why I am saying that payroll tax, if you make
payroll tax credits support job creation in the service sector, Nova Scotia put in place about three years ago a tax credit only for capital, for machinery. Is that still in place, the tax credit for machinery? Was it changed?
MR. HENDSBEE: For capital equipment? I think that has been eliminated, hasn't it?
DR. MACLEOD: Because I objected at the time. I said by you putting the tax credit in for capital equipment . . .
MR. HENDSBEE: I know municipally it has been removed. The tax credit for capital equipment for municipal taxation has been removed.
MR. PAYNE: I think the tax credit you refer to is the M & P tax credit of the Minister of Finance. I don't think it has been eliminated but I think it has been reduced.
DR. MACLEOD: So government is intervening in the economy to encourage companies to purchase more up-to-date technical machinery. I am saying if the government is going to intervene, why not intervene to create jobs? The payroll tax is a better way of intervening, if that is the problem; it depends on what you think is the problem. So for the technocratic people of Nova Scotia - and it makes sense - they are saying in the international economy of the United States, we have to catch up with the United States, we have to have one strong centre that has high-tech equipment and everything, so we will subsidize high-tech equipment and technology even though that decreases employment. So, I am not against high-tech but I say, why can't industry finance that itself? Machinery should be financed by industry itself.
MR. EPSTEIN: I wasn't suggesting that government necessarily finance it, I was asking if you saw areas of the Cape Breton economy that showed potential for growth.
DR. MACLEOD: Tourism and culture is clearly - right now I am involved in Ingonish as an advisor for a ski hill. There has been criticism in Halifax saying that shouldn't be subsidized, even though the provincial government gives $450,000 a year to the Rebecca Cohn Auditorium, so much to Neptune Theatre and this and that. We put $100,000 into that ski lift, BCA did. Ingonish is a poor area, fishing was cut back. We are saying the way that should develop, there should be a hotel there, the marina should be developed, there should be more natural things like walking in the woods and whatever. We are trying to develop a totally integrated package there.
In tourism, we are working to try to get - and we would like to work with Newfoundland on this - small areas making their own tourist packages and we want to use high-tech methods of, you know, Internet marketing and all that sort of stuff. We recognize that you have to get the economic sizes but you can get the size by getting 50 little towns with tourist packages and put money into promoting that, rather than having one big place as a tourist centre.
Culture and music. BCA invested in Howie's Celtic Brew - I don't know if any of you follow fiddling - we couldn't get one cent of government money to support that show. Culture
everywhere else, I am saying in Halifax there is the symphony and everything like that, fiddling is our symphony and our kind of music. We couldn't get any kind of help and so BCA had to finance that. I said that is industry, that is the future. There could be more jobs in the future economy. You cut back jobs in manufacturing, the physical. But you increase jobs in the service sector, the music industry, cultural industry, publishing, writing.
I have just found out, through the kindness of Minister Rodney MacDonald, what is available in government. I didn't even know that the province is helping publishing companies. I have been working with a publishing company for 20 years and I didn't even know you could get help, nobody told us.
There are areas that are specially suited. I am not saying take away the industry, Halifax is a terrific international port. I am not saying that Sydney Harbour bump out Halifax or Canso, no, all the infrastructure there is a tremendous investment. Let's look at some of the areas that we are suited for in the other places. Maybe it is our turn to get more support for those because certainly, the development of the port was subsidized by government. I am not big on grants, I would much prefer high-tax credits and tax incentives and things of that sort, low-cost mortgages.
Mr. Downe referred to the social thing. Sydney Mines, a mining town, BCA initiated a new building, plywood on the windows of stores in Sydney Mines, vandals, kids making fires in an old abandoned store. BCA jumped in and bought a few buildings - not with the government's money, we are not allowed to do that with government money, this is money we raised in other ways - and tore down the old buildings and put up a commercial centre. There hasn't been one problem of vandalism, a new building there, no problem at all. So there is a big psychological thing in places. If you have rickety old buildings falling apart, it encourages vandalism but when you have nice new buildings, people don't seem to vandalize them.
In that case the Government of Nova Scotia - I have to give them credit - did lease space in that building; it was a tremendous fight but they did lease the space from that building in Sydney Mines. That is one of the rare cases and I would like to suggest your committee adopt a policy in government that it isn't a grant - you are going to rent space in many places anyway, why not rent it from a community business because if we try to make profit - I don't say non-profit I say not for profit - everything we do we try to make profit and we use the profit to reinvest in the local area. A lot of these bigger companies make profits; some of the real estate companies, they invest somewhere else, they don't invest back into the local community.
So government needs a big building? If you let us build it and rent from us and eventually we amortize and it will eventually give profit, we put that money back to create more jobs for the same area. So sometimes a simple move by government can have enormous effects.
MR. CHAIRMAN: Mr. Boudreau.
MR. BRIAN BOUDREAU: Mr. Chairman, first of all I would like to thank Father Greg for coming here today and I want to recognize his important role in the economy, particularly in the Cape Breton Regional Municipality. I am familiar with many of Father Greg's projects in the past and he certainly puts forth a 110 per cent effort in everything he does. I think it is important for other committee members to know that.
My first question will be directed to Mr. Payne. Has your department ever approached the federal government to participate in the tax credit program?
MR. PAYNE: I can answer that directly and indirectly, I guess. First of all I do work for the Department of Economic Development but I don't know whether I should be speaking as to the policy of the department. I am not the minister or deputy minister, so I imagine Minister Balser could speak better to what our general policy is. I know when I worked at the Department of Finance before I went to the Department of Economic Development, we did approach them to recognize the community investment funds under the same legislation, where we do sit as the labour-sponsored funds, whereby then the tax credit costs would be split with the federal government. We have had absolutely zero luck in doing anything along those lines. To date, I am not sure if any further efforts are being made in that regard. I don't believe there are any under way right now. Certainly there was initial discussion with the federal Department of Finance but nothing proved fruitful from that.
MR. BOUDREAU: Thank you. Father Greg, when I look at your plan I agree with what you are saying, there is no doubt. Do you feel this is a short-term or a long-term plan for - we will pick any area - Cape Breton . . .
DR. MACLEOD: Long term. We are building institutions. We are using these programs of government to build institutions. We are the first general investment company outside of Halifax, whether it is privately owned or any kind. We are the only general investment company recognized by the Securities Commission outside of Halifax, so that is a departure. I think places for economic development, you have to build new kinds of institutions that are going to be there
for a long time. I don't want one-shot things, a job creation thing that lasts six months and is over. I am interested in building long-term institutions. It is like a tree.
New Dawn is 25 years old. It took that long but it almost can't fail. Governments have changed but New Dawn will be there because they don't rely on subsidies. It is long term and through these investment programs we can encourage local community investment companies. Remember, BCA has no staff, we are cheap, we save a lot of money because we do our work through volunteers and by contract, very tight. I would say we are lean but not mean. (Laughter) We can do a lot of things government can't do, we have more flexibility. I think it is in the interest of government to encourage these kinds of institutions. I say definitely, this is long term.
MR. BOUDREAU: Wouldn't you agree with proper government participation that this plan could have an immediate impact on areas such as Cape Breton?
DR. MACLEOD: No question. One thing I suppose - I didn't put it in my paper but as we were talking I thought of - if the government has a 20 per cent guarantee, I think the guarantee should be increased to maybe 40 per cent. Chris, how much has the government put out in tax credits since this program began?
MR. PAYNE: Through just the CED Investment Funds or total . . .
DR. MACLEOD: Yes, just the CED Investment Funds.
MR. PAYNE: About $0.75 million.
DR. MACLEOD: Okay, $0.75 million is a very small amount of money but that levers a lot of other money so I would say you are not in danger, with this kind of very small little program of exposing government. Part of the thing is in high-risk areas like ours, it is quite a job to raise money, very hard; we have been doing it but it is very hard. If we had more guarantees, or maybe the best thing is for each general company, once they have been established, a lump sum from government or if the government bought preferred shares.
BCA Investment Co-operative - that I am Vice-President of - if the government bought $0.5 million in preferred shares, the preferred shares act like sort of a guarantee, another kind of share to buffer the company. When people buy shares with us in a very fragile economy they are nervous. You get your 30 per cent tax credit but they are still nervous. I think that program could and should be re-enforced in a couple of ways. One is to raise the tax credit, and to raise the percentage of guarantee. Maybe the best way of doing the guarantee is just make a lump sum purchase of preferred shares, something to put real money into the thing.
When you do a guarantee in government now I believe the Auditor General considers it almost like an expenditure, doesn't he?
MR. PAYNE: It is just a non-revenue that comes in.
DR. MACLEOD: He makes you put it on the books, I think, doesn't he, if it is a guarantee?
MR. PAYNE: Are you talking a guarantee or a tax credit?
DR. MACLEOD: The guarantee.
MR. PAYNE: The guarantee, we still have to set up the contingent liability on the guarantee.
DR. MACLEOD: Yes, you have to set it up as a contingent liability in government so I am just saying, if it is set up as a contingent liability, why not put out some money in the form of preferred shares so it becomes a little bit of income for the group and it makes it more attractive for people to invest in? That is not big for government, it is a little thing and this whole program is quite small. I am not saying it is the be-all and the end-all and the solution to our problems, that is why in my paper I mentioned other things. Maybe the solution is a lot of things, no one big thing but a variety of different kinds of things in each community.
Nova Scotia Community College, when BCA started, around 1989, the Minister of Education allowed us to use the community college for our offices so we saved money that way. I am saying the Nova Scotia Community College system could be very useful in local economic development, in making the personnel, the staff and resources available to the local community. I think that policy, if government encouraged that, it would be very useful. That's not a grant; people are there, facilities are there. If they just say, as policy, we would like the community college system to support community business, that helps us.
So my message is, we aren't asking so much for grants, we are asking that the existing government resources be used more effectively to help those areas of high unemployment. I think you can. I mentioned renting real estate for one and using the institutions such as the community college system. I know the Marconi Campus has been quite good, we have talked to them there. But it helps when the government makes the policy.
[2:00 p.m.]
MR. BOUDREAU: So would you agree that all the communities, the ones I'm familiar with at least, I believe they have the tools, that the communities have the tools if the government is willing to provide this initiative that you are speaking of. Do you agree that these hard-hit communities still have tools within their means to work their way out of this economic . . .
DR. MACLEOD: Listen, as I tried to point out, it's a lot of things, it's not any one thing, and we have to be very careful of this. We do need some government decentralization in Nova Scotia and we do need payroll tax credits. We do need these community investment funds and we do need to attract industry. Our group - I am connected a little bit with some focal groups that are trying to attract large industries interested in exploration on oil and gas and stuff like that. It would help us tremendously if we could say to such companies, if you came to our area,
you get an automatic payroll tax credit. You know, we are in very bad shape with the coal mines and the steel plant, many of the companies we are talking to are in trouble.
The banks, if you go to Burnside Industrial Park - if we set up a company in Burnside Industrial Park we get one level of interest from banks; if we set it up in Glace Bay, it would be about 30 per cent or 40 per cent higher, the interest rate. I think you might find the same thing in Yarmouth, any of the littler areas. So people say, oh, we go to the bank, why can't you guys? Yes, we do, but the rates are different and the investment rules of large investment companies, they just redline us because of the fragile economy. So I would say to correct this imbalance, there have to be initiatives by government.
You say we have the tools, I'm very pleased with the business people that I work with. We have volunteer business people, very competent. It is an uphill battle that with some of these kinds of helps, in that sense, I think we could do a lot, and we are. We are resigned, we can't do much about Sysco, it's beyond us; most of us don't even understand the ins and outs of it. But there are groups. We have the Grow Cape Breton group and we are looking, we are going fishing, sending out feelers, but you need these kinds of helps. I really insist that it is a standing program, it doesn't matter what the company is. So when you have to have each individual company dicker, it's more objective when you say that a company that goes to an area with 15 per cent unemployment, automatically gets a payroll tax; that's much more acceptable.
MR. BOUDREAU: Just one last question, Mr. Chairman. In regard to the Halifax area, I believe, at least, Halifax is now experiencing a difficulty with their transportation system, in such instances as highway, road infrastructure. Do you believe that the health and education systems are vital, the strength of those two or three identities, like the health, education and transportation systems, isn't it vital to the economic prosperity of the entire province, particularly for the areas that are hard hit now?
DR. MACLEOD: Well, I'm not an expert on everything; I do little bits and pieces of things. I haven't really looked at the transportation thing. One thing I know for Cape Breton what I would like to see, is a super-highway between Hawkesbury and Sydney, Point Edward and Sydney. Linking those two industrial areas would help both and I would be just as happy with a toll highway. I go to Europe a lot and all these countries have toll highways; you pay a toll. I would say we would be willing to pay a toll if we could get a highway so it would be one hour between Hawkesbury and Sydney, because we have a kind of workforce that is industrial oriented in our area, and that's an advantage today.
In many parts of North America, there is a labour shortage. So instead of our workers going off to look for work in other places, I think we could bring some industry to our area. But I think it would be important to view Hawkesbury and industrial Cape Breton as a unit, and that's happening anyway. We have people down in industrial Cape Breton driving to Hawkesbury to work there and they drive back and forth; that's an hour and a half. So I would say, for me, I would favour a high-class highway between Sydney and Port Hawkesbury; even if it took tolls, I would say it would be worth it for us.
MR. HENDSBEE: Via Route 4 or Route 5?
DR. MACLEOD: That's something the Department of Transportation people - some people say it should go through Iona and hook onto the Trans Canada, but that's technical. That's where you need the technocrats. (Laughter) That's where you need the technocrats who look at the maps and the costs and the hills, what part of the road is straight or crooked; I couldn't judge that.
MR. BOUDREAU: Wouldn't you agree that health and education are vital to attract new businesses to the province, particularly in these areas of high unemployment?
DR. MACLEOD: Of course. In a developed country, you certainly have to have a decent education system and health system. As I said before in my remarks, I consider education a key element for any kind of economic development. I'm not original; all kinds of studies have been made on that.
MR. BOUDREAU: So it all ties together.
DR. MACLEOD: It all ties together, yes.
MR. CHAIRMAN: Ms. McGrath.
MS. MARY ANN MCGRATH: Thanks, Father Greg. I would like to change direction just a little bit. Some of the information that is available on BCA Ventures talks about some of the things that you have been involved in already. I note, for instance, things like East Coast Rope, A & B Mechanical; you have a penchant for buying bankrupt companies that couldn't make it before and, all of a sudden, they make it now. What changed? Was it the way they were managed, was it something that changed in the economic climate at the time? What was different?
DR. MACLEOD: One thing you find, it's not just Cape Breton.
MS. MCGRATH: No, it isn't.
DR. MACLEOD: In fact, I was in Japan two months ago - I was invited there - and a lot of old companies run by families are in trouble. What is happening is the people who ran it - and this is what we found in Cape Breton - sometimes someone is running a company, oftentimes a family company, and their children get educated and they don't want to stay home. They go somewhere else and the people are left with the company. Sometimes what is happening is you have a family company and one of the children wants to take it over but doesn't have the ability of the parent, and they get in trouble. They spend all the money that the parent made over the years and the company gets into trouble and goes bankrupt.
I think it is an extremely important function that a company like us can pick up the pieces and our people say, is the concept right? The company went bankrupt, the concept was
right, but the people had poor management, they were badly financed, and management is the key thing for us and the finance. Yes, our thing, naturally, and I think you might find that in a lot of little places, companies go bankrupt.
We took the rope company - we sell 30 per cent of the product in British Columbia - and government officials told us that the company wouldn't work in Cape Breton. They said that we are too far from the markets. Those guys aren't business people, they are officials in government saying what will work. Our business people, they knew things and they said, all kinds of trucks have back-haul, they bring stuff up, they are going back empty, so they know they can get a cheaper rate for the transport because they are going back. But the person in government is going by a theory of economic development and the business people are saying, well, I saw this happen there.
Even myself, to push my own book on Mondragon, it's one of the most successful companies in the world. It is worker-owned, 40,000 workers. There's no railway, there's no airport and there's no seaport. All the factories are in the mountains and they were awarded the prize of excellence by General Motors; they supply parts for General Motors and it is a worker-owned company. It's not in the major centre, it's in the mountains. So I would say, it doesn't matter where you are, you can be out in the boondocks and still have successful businesses. So I disagree with a lot of these theories that you have to concentrate everything in one place.
MS. MCGRATH: So basically it's a combination of good management skills and knowing your own local area, and what strengths you have and what you have access to.
DR. MACLEOD: Management is key. The more we get into the thing, management is the key element. On our boards and committees we have experienced business people and actually our business manager, or consultant - we do everything by contract - is Ernie Boutilier who is President of Devco. Now the UMW criticized that, but it's automatic that they are going to criticize whoever's there. But nobody has ever criticized him about his financial analysis. He was always very good and he is an FCA - that's a step above chartered accountant. So he works with us. We are a community group, non-profit; we are able to get high-class business people to work with us, so it's for reasons like that that we are able to take a bankrupt company and make it work.
MS. MCGRATH: Do you have enough resources to allow you to mentor enough companies, or do you find you are stretched?
DR. MACLEOD: I was really disappointed. A big problem is aftercare. Our business people say, look, money that we put into that company and we know that they are going to get into trouble, or they don't have enough experience. It might be good at production, but not good at marketing or finance, and really they need some hand-holding for a year.
There was a federal program under Industry Canada that BCA applied for and it was meant to help little companies, make their packages, the go-between thing. It was competitive; BCA competed and Halifax competed. Halifax beat us out, your community group. But you
were lucky. Your community group had Wynne Potter, Vice-President of ACOA, on the board; you had the Deputy Minister of Economic Development on the board of the community group; you had the Vice-President of the Royal Bank on the board. So your community group beat us out and it was a government program to help small businesses access capital. The government people in Ottawa said we weren't really representative of enough of the community, that the Halifax group had better community representation. So that's what I mean by not a level playing field.
MS. MCGRATH: Thanks very much.
DR. MACLEOD: But that is key, that aftercare, and we were hoping - and we talk about that - if some government could, that kind of support about after you invest in the company to the hand-holding afterwards, is extremely important.
MR. CHAIRMAN: Mr. Parent.
MR. MARK PARENT: Father Greg, I have been an admirer of yours for a while, particularly the emphasis on community-based development and the role that your faith plays in your life as well. I also agree with you that there are strong parallels between the situation that rural Nova Scotia faces - and Cape Breton - compared to the Halifax region. Many of the things that you have been saying about Cape Breton, I know rural MLAs would echo them, as well, from areas outside Cape Breton. Also the political structure and the whole question of the technocrats is a fascinating sort of issue of the power of information, and perhaps we need to switch to the power of knowledge versus that of information.
I have two questions for you. One is, in the written presentation, I think there is a danger - and I wonder how you avoid this danger - of saying that we need government to help us and therefore you disempower the community by saying unless the government helps us, we can do nothing. Now that's certainly not what you have done, I agree with that, but there is the danger that communities can fall into if we can't get the government aid, if we can't get the government help, in whatever form, then as a community we can't do anything, we will be stuck in the backwaters. How do you avoid that danger of disempowering yourself as a community?
The second question is, the government often gets criticized, of all political flavours, when it helps out businesses, even payroll grants. For example, the criticism that came out about the grant to the Sobeys, which you mentioned you agreed with, you just wanted to see it expanded. So how can communities avoid disempowering themselves by feeling they need to rely on government too much, and also what do you have to say about this criticism of governments helping out in terms of businesses?
DR. MACLEOD: You know, there is a tremendous relativity in economic development. I was in Mexico last week in an area of Maya Indians, and half of them don't have running water. So when you talk about economic development, there is a tremendous range. I say we can always do something, I'm a strong believer in doing something; however down you are, you have to do something. I say that's a function of hope and what our doing relies upon, me, my
kind of thing is, people of goodwill who are willing to work in getting business going, even if they don't get personal profit, they get criticism. People have said, Greg MacLeod, you are the richest guy in Cape Breton, they think I own all these businesses; I don't. So you get used to that, you don't mind that.
The thing is, the reliance on government, I talk the way I do, as a little bit of a counterbalance to people who naively say a community can pull itself up by its bootstraps, and people have said, Cape Breton, you guys help yourselves. There are structural problems done by government, government would not support the service industry in Cape Breton for 20 years. They would subsidize a service industry in Halifax, but not in Cape Breton. So you have a structural change in the economy of Nova Scotia done by government and I'm saying, I think government has a little bit of a responsibility in undoing that. It would be naive of me to say that we can just catch up on our own, we can't catch up.
We can become sort of resigned that we aren't as well off as other people, and I don't mind that, I don't mind being poorer than other places, but the debilitating thing and the worst thing is people unemployed. It destroys their social standing, their self worth, their dignity. All over the world, that's the worst thing that can happen to people. Playing a productive role in society is important.
So my thing is, I want government to encourage us to do what we're doing. Actually this program is cheap, not costing government a great deal of money, and that program is encouraging us to help ourselves. It's not a grant. You check with your own people; the Government of Nova Scotia is giving tax credits to a number of companies in Toronto. I would like to know how much those tax credits are. I showed you, remember that thing that was sent around, a Trimax or something like that? It's Government of Nova Scotia tax credits to companies that take money out of Nova Scotia and invest it somewhere else. I would say, increase the tax credit in this program and cut out those other tax credits. I don't know why the government has ended up giving these people tax credits.
I have always avoided grants, I must say. In fact, the business people I work with, they don't like it. They are uncomfortable in doing business that depends on grants. They say, no, give us a break on the taxes and things like that, that we will try to make it work.
The social solidarity, this is another kind of, it is not business, it is more social, or whatever. When people live in a traditional community where they have cousins and they have people they went to school with, all these sorts of thing, there is a tremendous capital resource. I call it human capital. When you break that apart - that is what happened in England. When you take those same people and you put them into anonymous places, you disintegrate the social capital. You don't get the same level of helping each other, solidarity, mutual help, what you get in littler places.
I am not worried about us losing our spirit of mutual. You know, you check your charity. Sydney Mines - I checked two years ago - had one of the highest per capita charity rates
in Canada. Unemployment in Sydney Mines at that time was 40 per cent but, yet, they had one of the highest charity rates.
Again, it is not just government. The Cancer Society - we give very strongly to that but most of the jobs of the Cancer Society, it has about - I don't know - 25, 30 people working for them. Most of them are in Halifax. I would say everything is centralized, even the charity. It is not just government, it is a snowball thing.
I'm saying, look, I'm not against Halifax. Some of my best friends are here. (Laughter) But, you know, it's the same sense. I'm sure Premier Hamm is not against Toronto but he's saying, hey, there is a little bit of imbalance here in the country. He said he wants a little bit more equity and fairness in the system. I'm saying, Premier, let's do the same thing in Nova Scotia. What's sauce for the goose is sauce for the gander.
MR. CHAIRMAN: Mr. Epstein.
MR. EPSTEIN: I have a couple of questions for Mr. Payne again. I wonder if you can help me out. The first proposal we heard was to enhance the community tax credit, that was the first suggestion. This is the program that you are responsible for, isn't it?
MR. PAYNE: Yes.
MR. EPSTEIN: Yes. I'm wondering if you can help me read the Department of Finance document from last March that reports on various tax credits that the government has. When they talk about the community economic development investment tax credit, they seem to suggest that, overall, because it started up back in 1994, that to date it has lost the province about $3.5 million. Last year, it started to be - there used to be there was a positive return to the province. The first thing I wonder is whether, since this document was from March of last year, you know whether it is on a positive balance for the year that has happened since March of last year?
MR. PAYNE: The numbers you are referring to, I believe, are the combined figures for the equity tax credit and the Community Economic Development Investment Fund which is an enhanced version of the equity tax credit. So that would relate to the total amount of investment that has been made into over 200 companies in Nova Scotia.
The numbers, as to its impact on the province - obviously, the tax credit is paid at the time the investment is made by the individual into the company or into the fund. So at day one, there is, obviously, a negative impact on the province because we pay back the tax credits up front and the impact of the business doesn't come until later down the road when they buy equipment, manufacture things, hire employees and so on.
The economic modelling, which is done by Charlie Pye's group out of the Department of Finance that does all of this statistical analysis, basically shows a demonstrated return to the province from nothing other than the incremental tax benefits and the direct purchase of equipment that in year three, the full amount of the tax credit has been repaid in full, plus more. There is no gross-up. There is no provision for any sort of growth in those companies. They are assumed at the time the investment is made, they remain static, which is not a reasonable assumption. I would venture to guess that the return is significantly positive and will continue to increase, related to the amount of investment we receive.
MR. EPSTEIN: Okay, well, that is my question. Is it going to be positive in future years?
MR. PAYNE: Most definitely.
MR. EPSTEIN: Okay. The other thing I wondered about this analysis was whether there was an underlying assumption about the forgone taxes that might be misleading and, therefore, not give as good a picture of the working of the equity tax credit as might be appropriate. The assumption seemed to be missing here, or the assumption that would seem to be built in was that these dollars that would otherwise be taxable as revenue, whereas, would it not be the case that investors would find other investment vehicles and there would be other write-offs for them? For example, couldn't they just put the money into other forms of RRSP?
MR. PAYNE: The actual direct tax impact you are looking at there as a cost to government, I believe, is reflective of the ETC, or the 30 per cent tax credit. So if the investor chooses to invest into a mutual fund or into a stock on a stock market, then obviously we would not be providing them with the tax credit. Those are the incremental or the impact of the investment made through a company which has received its ETC eligibility certificate from the Department of Finance.
MR. EPSTEIN: Well, it doesn't say that but, okay, I guess I can nail that down with Mr. Pye. Okay, let's . . .
MR. PAYNE: If you have any questions on that particular table that you are looking at there, that was developed by Mike Queripel at the Department of Finance. His number is 7379, if you want to call him and get the exact details.
MR. EPSTEIN: Okay, thank you. The other thing I wonder is this, that the program seems to have at the moment an expiry date of December 2003. Is that still the case?
MR. PAYNE: The original expiry date was December 2001. In the program review it was extended to 2003. None of the tax preparers at Finance has a sunset date later than 2003. It is going to be an annual review process - if it is still seen to be effective, then they will just have, sort of, annual increase so that at next year's review time, it will go from 2003 to 2004. It is simply a matter of policy where all tax credits have had a sunset put on them.
MR. EPSTEIN: The timetable that you are talking about sounds like a two year advance notice of phase-out of a program. Is that the policy, two years or one?
MR. PAYNE: I really can't speak directly to the policies of the Department of Finance but from my involvement in those meetings, basically, they would not put a sunset clause in later than 2003 at the time that was put in. That will be revisited on an annual basis and whatever the sort of extension time is, will be developed at that time.
I don't mean to be dancing around your question here but it is, basically, that they will only put the sunset out so far. Then when they review it again this year, that might go to 2004 or it might go to 2005, depending on what the policy is internally at that time.
MR. EPSTEIN: You're not aware of any policy yet being adopted. Is that right?
MR. PAYNE: It is not currently under review, no.
MR. EPSTEIN: No, I mean, generally, for advance notice for changes in tax credits?
MR. PAYNE: No.
MR. EPSTEIN: Okay, fine. Thanks.
MR. CHAIRMAN: Mr. Hendsbee.
MR. HENDSBEE: A couple of questions for both gentlemen. First you, Chris.
In regard to the Community Economic Development Investment Funds, what is the status right now of the portfolio and how many Nova Scotians take advantage of actually making investments into the fund?
MR. PAYNE: The funds, as Mr. Epstein indicated - he had seen sort of - since 1994, I am sure former Minister Downe is familiar with this program and it is the ETC program, as well.
Although the CEDIFs were announced by our then Minister Boudreau in 1995, we actually could not start a CD investment fund until about 18 months ago because of conflicting legislation between the securities legislation and our own internal legislation that governs the equity tax credit. So we really have only been up and running for about 18 months. In that time, we have got 10 funds started in all locations throughout the province and those funds have brought in about $2.5 million of investors' money which has been reinvested into approximately 16 companies here in Nova Scotia.
MR. HENDSBEE: That $2.5 million that has been raised, is that basically from individuals from the province or are there companies or corporations, or some funds out there that are investing in these things for tax advantages?
MR. PAYNE: The $2.5 million I refer to is 100 per cent individual money and the individual contributions range from a low of $100 that some people made into a small board plant in Meteghan, up to $30,000 which is the maximum individual contribution per year. Some of those funds have then gone out and levered additional money, certainly through ACOA and through some other financial institutions, so they have been able to lever additional money. We don't refer to that money, that is above and beyond the $2.5 million. All we refer to is the direct money which has come through from individuals.
[2:30 p.m.]
MR. HENDSBEE: How many individuals have personally made a contribution to the fund?
MR. PAYNE: Between 500 and 600.
MR. HENDSBEE: A question for Father MacLeod, in regard to metro, my riding, the Preston constituency, is on the cusp of metro. I have an extremely high unemployment rate in the black communities there and sometimes what is always good for the goose of metro does not necessarily mean it is good for the gander when you get into rural or some of the outlying communities from metro. With regard to Halifax, what do you consider metro Halifax, a one hour drive from Halifax including the Valley or within the boundary of 25 miles?
DR. MACLEOD: I would say a one hour drive. I know there are exceptions and I am familiar with Preston - it must be 15 years ago I was invited there to speak to a community group - and this does occur in large metro areas where you get an enclave, Preston is like a village. The characteristic of metro is most of the people there were not born in metro. It is a floating population and that is true of Toronto or Vancouver. The people have been in Preston for three or four generations - I don't know how many, whether it is more - it is really a village close to metro. Those kinds of places are exceptions and in that community there has a very high unemployment rate too. I compare Preston to Glace Bay or any of these kinds of communities.
Back to your question about numbers, BCA Investment Co-operative has 200 shareholders.
MR. HENDSBEE: You talk about tax credits and stuff, are you aware that the province in its last budget adjusted the film tax credit? They lowered the amount in metro and they increased the parts for rural Nova Scotia. Do you think that should be done with other tax credits that we presently offer?
DR. MACLEOD: I agree with that approach. You remember that I said - and I try to make a point - that within the province there are some things very suited to metro, like the Port Authority and there are a number of industries that can only prosper in this type of place, the aeronautics industry, where you rely on universities, research centres and such. We are not knocking that but for years I have said culture-based activities and movies are the kinds of things that seem to be quite well adapted to smaller places that have a strong musical culture and oral cultures. I thought the government should have favoured us and the first sound stages went to the metro area. I thought that was very unfair because one of the areas we could have developed in, I thought, the rug was pulled out from under us, we couldn't compete. I said, how about giving us some areas that we might get a little bit of a leg up and I thought it should have been the movie thing.
I think the province is going in the right direction by giving the higher tax credit - it is only 5 per cent, it is not enormous - it is a little bit of compensation for the areas outside of metro because metro did get a head start. If you get a head start, it is hard to catch up.
MR. HENDSBEE: With regard to other community economic development issues how have you found the province, the municipalities and the feds have done with the regional
development agencies? How is your experience in dealing with the groups and how do you feel that organization should be strengthened or revitalized?
DR. MACLEOD: I find that very hard to talk about because I haven't dealt with them and I think they are different everywhere in the province. Before I even say anything about that I would want to look closer. I don't quite understand how they are set up, really, their structure. One thing that sometimes does happen in my travels around the province, is a little bit of competition, different groups looking for their day in the sun and that is a problem. I better not talk about what I don't know well.
MR. HENDSBEE: Thank you. Those are my questions for the moment.
MR. CHAIRMAN: Mr. Downe and then Mr. Parent.
MR. DOWNE: Just a couple of comments. You mentioned earlier about down on the farm and hauling them out of there. There was quite a cultural history down on the farm and we have a bit of our own culture in rural Nova Scotia that is unique, pristine and good and there are many city people who would love to have a part of that identity. I am just bringing it to your attention that there is a lot of credibility, capability and intellectual property and all that kind of stuff, as well as culture. Down on the farm I think it is good to keep that as part of our identity in rural Nova Scotia.
I want to mention a couple of things. The manufacturing tax credit, I think the question was whether it was reduced, eliminated. It has been reduced down, as I understand it, effective January 1, 2001 to 15 per cent from 30 per cent and it is under review. There was a grandfathering provision built in so that if any major project was underway it would be grandfathered for some period of time.
The film tax credit and the sound stage, it seems to me we did invest in the sound staging in Cape Breton for the Pit Pony and there was money put into that project back in 1998, if I recall correctly, so there were initiatives to diversify some of the economic base in that area.
DR. MACLEOD: My problem was whoever gets there first gets the infrastructure and then it is hard for anybody else to catch up once you are in that area. I think there should be special areas, maybe zones, or economic activities that may be more suited for the non-metro areas and some are more suited for the metro area.
MR. DOWNE: My question goes back to another area. We have seen areas of concern and I agree with you on the tax initiative, we tried to do that while we were in power, to be an incentive. The enterprise zones we talked about earlier are to me very important for rural development, Cape Breton development, areas that have serious economic situations, where you would focus in your attention as a government to a particular area and provide those initiatives for private sector investment to come to and have a tax benefit for doing that.
My question is, in studying rural communities - I guess this was one of the main reasons why I wanted to talk to you today - we talked about those areas that are having problems but how do you approach a community that is actually starting to grow? I think of Guysborough County, for example, now we have the offshore activities going on, we have Goshen and other areas starting to see benefits of the fact that the gas is coming onshore in that particular county. All of a sudden there is a whole new area of challenges for the communities and that is growing, benefiting, keeping up and trying to improve infrastructure and communications and just a litany of issues. How do you see communities that all of a sudden are starting to see economic prosperity in a real way? What would you see they need to do to maximize that and to grow that, to be that self-reliant community of economic strength in the long term and not just in a short-term initiative?
DR. MACLEOD: About four years ago I was invited to speak in Goldboro to community groups there and I made the point - and I would have the same answer now - that I tried to encourage them to build institutions within Guysborough. According to government statistics, every county in Nova Scotia has been dropping in population except in the four counties around the metro area and Antigonish. Antigonish is because of the university and the hospital. Guysborough has been losing population.
My point was I thought there was an area set aside for a park there near where the gas comes in. I thought they should have set up an investment company, something like our type of investment company, to take advantage of it so you would have local input and control over the economic development, the people who live there.
The other thing was I thought that they should have made more of an effort to get people to live in Guysborough. You can't get to Guysborough Town from Goldboro. The road is very bad but there is a very good road to Antigonish. So the people coming in to work, all the technical people, will live in Antigonish. It is very helpful to Antigonish but Antigonish was doing well anyway. So I would say a great deal of the economic spin-off will be in Antigonish, it will not be in Guysborough.
So I would say when you have a development like that, something happens, it is extremely important you have kind of an infrastructure organization, the road is one, Brian mentioned that. I thought that because you have these little towns, small places around Guysborough, that would have helped the whole county if they thought in those terms and made a point to get a road going or improve the road to Guysborough so that the while the good road takes you to Antigonish Town, there everybody is going to live, all the engineers and specialists. So Guysborough itself has enormous economic problems. I am not clear that they are going to get a great deal of economic benefit out of that oil benefit, because they don't have that kind of infrastructure to take advantage.
We have the same thing in Cape Breton that maybe oil or gas or something will be developed. I am one of the ones who has encouraged a number of business people to start getting ready, to start getting investors ready and talk to companies and prepare land for industrial development because if we don't, somebody else will get all the spin-offs. When you see an
opportunity, it needs to be planned well in advance of the event. Once you know something is going to happen in the future, government should encourage and bless this kind of thing to get some local business leaders and people to get together to set up structures to take advantage of what is going to happen.
This is kind of the nice thing but the bad side is that many of our business people are handshake people. They do business by the shake of the hand, they trust your word and all that. Modern, international business, that kind of stuff, there are all kinds of contracts, planning, rules and very technical things. So we have to be planning well ahead and that should be encouraged.
That would have been a good thing for government to do, I would say, in the case of Guysborough and sometimes that doesn't cost much, that kind of getting a study to look specifically at how they could get the local benefit. Maybe things have changed but when I was talking to people around there, I had difficulty seeing what the local economic benefit would be for the people who lived in Guysborough itself.
MR. DOWNE: It seems to me, Father, they were working very hard at developing a strategy and taking a look at what are their pluses. For example, the gas that is there and how do they extract some of that for manufacturing, power generation or whatever the opportunities might exist there and how to co-locate those companies and then create that economic - they are seriously looking at that and I think there is a role for government and government policy in that community to build some long-term foundations for economic strength. Part of this - what Brian was saying - the infrastructure, but to me there could be a broader direction from government to focus in on how they can build some of that strength through natural comparative advantages by the fact that gas is coming to shore. I guess that was all I wanted to mention.
DR. MACLEOD: An important thing, and the thing I try to encourage them about, when you take a few fishermen and farmers and they sit down at a table with representatives from Mobil Oil, it is a very unbalanced kind of negotiation. I had encouraged them to get some local organizations but also some of the former residents who were maybe born there; they might be living in Halifax or wherever but get people with expertise.
I really recognize the importance of expertise in negotiating in the economy today so little places, now when we have lost our population, one of the techniques is to find former residents who have the technical expertise and business experience to come back and help out. That is my answer to how the communities can take advantage because I find so often we don't get all the advantages. The advantages go somewhere else.
MR. DOWNE: Thank you.
MR. CHAIRMAN: I guess we have time for two more short questions. We will have Mr. Parent and then Mr. Boudreau and we will give you a minute or so to give us a final wrap-up after that.
MR. PARENT: Just very quickly, my question is more for Chris although, Father Greg, feel free to jump in. I am pleased with the program. I am just wondering how you see it being expanded. For example, ethical funds have really taken off and people are buying into the ethical funds when they buy stocks, in part, twofold, because they want to invest ethically but in part because they are showing very good rates of return too. Are we showing good rates of return with this, for those who want to invest in it, and how do you see us attracting, for example, the Nova Scotia Pension Plan? It is fairly lucrative, it has a large amount of money. I don't know where it is all invested. I am sure a large portion of it is not invested in Nova Scotia and it could be invested in something like this, but how would you convince people like that that this will give them a good rate of return?
MR. PAYNE: I wish I could give you a better answer than I will. Basically, talking about some of the types of funds that sort of parallel the ethical-type mutual funds, we certainly had many discussions with different groups all over the province. Mr. Hendsbee, certainly we have had discussions with some groups out in the Preston area and out on Main Street and talking about the development of a Black fund that would support Black businesses throughout the province. We haven't had a great deal of progress on that yet and certainly we have talked to BBI on that as well. We think that would be something that would be very beneficial for that sub-community of the province and also it certainly would lend some more profile to the program itself.
We have also talked at length with the new CDENE, the Acadian group basically. Certainly they are very interested in doing something to support Acadian businesses down through the Meteghan area and also into other pockets, areas where the French community is strong. Certainly in some of the historical ways that the Acadian communities do, as Father Greg talks about, more internalized into the community and there is not so much of the migration effect. They have a natural affinity to this kind of program. We haven't successfully launched that yet but certainly we continue to work on it.
Talking on the other part of your question, when you talk about attracting more money into the program, I alluded earlier to the fact that we have received some cooperation from some pockets within the Investment Dealers Association but basically speaking, we have made progress in dealing with the highest levels at Merrill Lynch and with some of the financial planners of Assante and some of the other places. Certainly the cooperation from the Royal Bank and the Bank of Montreal has been anything but encouraging. We have $10 billion worth of debt out there, most of it is held with our chartered banks and they are making hundreds of millions of dollars a year from the province. If the province could take a position whereby we would like those banks to participate in initiatives that we have, I think we could do some really wonderful things.
It is not just our government pension plan. Certainly in talking with the administrators of Nova Scotia Power and Aliant, some of the other big companies, they all have pension portfolios in excess of $500 million. If we could take 0.5 of 1 per cent of the typical pension portfolios, we would quickly amass greater than $100 million to reinvest in the way that Father Greg is doing in Cape Breton. I think that would have immense impacts on our economy here.
DR. MACLEOD: I want to say something to that. The rate of return, you are not going to get, don't expect a high rate of return on any of these kinds of funds. We are lucky if we will ever be able to get about 3 per cent return. All these other companies that tell you about the big return, the way they get the return is going public on the stock market. We won't invest in a company that is going to promise 25 per cent return, because they can only do it by going on the stock market. If they go on the stock market, as some of the software companies have done, their stocks are bought up and sometimes a big company like Microsoft will buy them and move them out. So it contradicted the program. We lost the company. So you don't get the big return.
Now I just had an inspiration for you on how to solve the problem. We have had cooperation from Co-op Trust. They are charging us $50 a year for an RRSP portfolio. We do the administration. We collect the fees on their behalf so we cut down the work. So that is why they give us a cut rate, a couple thousand dollars, okay, you can stand the $50 but the other companies are charging around $150. So if you put $2,000, that is an awfully high administration fee, but there is not enough business in Cape Breton to pay for an agent of Co-op Trust.
I would say if the provincial government made an offer, and it is kind of a pilot project, look, we will subsidize one of your staff people for two years. Let all these trust companies compete. Say the Province of Nova Scotia, to enhance this program, is willing to subsidize and pay the salary of an officer of an investment firm if they will facilitate these sales. So that would mean, say if Merrill Lynch said, oh yeah, we will take you up, you will pay the salary of one of the guys so then that means all the Merrill Lynch clients could go in and go to that person and say, I will buy BCA, buy BCA, buy BCA. I know if you did that with Co-op Trust they would take you up on it.
So government can't pick out one company against another but it is a key nerve centre, you know. The investment firms, they control where the money goes. They are draining the blood out of all Nova Scotia, not just Cape Breton, $2 billion a year. So there has to be some kind of technique and I think the government should try some pilot projects to divert investment funds back into the province and to encourage it. I would say it would be a very good investment because I talked to Co-op Trust, I tried to beat them down on their rates and they said that there is not enough business in Cape Breton to warrant an officer, to have someone sitting at a desk that your Securities Commission would accept. So we are stymied.
We have people who have money in all these big companies and they want to invest with us and they go in and they say, oh no, that is too complicated. They won't do it. We would advise you against it. We have some people who happen to be loyal Cape Bretoners. There is one in Halifax, a former Cape Bretoner and a very successful business guy. We went after him. Come on, you owe something back to Cape Breton and twisted his arm and said, if you don't invest, your tires will be slashed tomorrow. (Laughter) I am just joking. That is just a joke. Anyway, we use moral pressure on these guys.
This is a successful business guy and he phones his investment firm and they said, we don't advise you to invest in BCA. We think you are making a big error. It was $30,000. He
said, are you trying to tell me how I should invest? He said if you are not willing to do what I tell you, I will just go to another company and that company did. It is one of the companies that would not allow their clients to invest with us. He said, it is my money, I know business and I want to invest with them. They really resist that because they are comfortable with the stock market. It is on the computer and it is simple but once it goes in the stock market thing, it goes wherever the highest bidders are.
So I would say it is a challenge for you guys to figure that out. I would say one of the ways is, put up some money to hire a staff person and open it to any of them. You say, you guys bid on this and we will subsidize a staff person who will handle clients during this, even during this three or four months of the investment period.
MR. CHAIRMAN: I guess we will give the last short snapper to Mr. Boudreau.
MR. BOUDREAU: Mr. Chairman, very quickly, I get more concerned every day, particularly across the province when people criticize Halifax because they are busting at the seams economically. Would you agree that a healthy Halifax - and I would like to say that Halifax does have some difficulties, particularly when we look at the road infrastructure, in my opinion at least - is a benefit to other regions of this province?
DR. MACLEOD: Of course, in the same way I am saying a healthy rural, small-town Nova Scotia is of benefit to the province.
MR. BOUDREAU: Thank you.
MR. CHAIRMAN: I guess with that, Father MacLeod, if you have some closing comments, or have you said it all?
DR. MACLEOD: No. (Laughter) I will be around here after. I am willing to speak to you who might buy shares in BCA Investment Co-operative. You get a 30 per cent tax credit. You only have a week left, or so. You can even put in your RRSPs. These are ethical funds. So I will hang around for those who want to invest.
MR. CHAIRMAN: With that, I would like to thank you very much for your presentation. It was very informative and we certainly appreciate your time in coming here to speak with us.
DR. MACLEOD: Thank you for your time. I am very pleased to be here.
MR. BOUDREAU: Mr. Chairman, I am wondering if we could take some direction on Father Greg travelling out here all the way from Cape Breton. I would like to see at least a letter go to the minister probably suggesting he consider that the department approach the federal government to come in to get some kind of agreement in regard to the investment funds.
DR. MACLEOD: Why don't you use the general, enhance the present program?
MR. BOUDREAU: Yes, enhancing this program and, in fact, providing a copy of Father Greg's presentation here today to the minister and ask him to comment to the committee members, please.
MR. CHAIRMAN: We can certainly do that. Thank you very much.
MR. PAYNE: If I can, if it wouldn't be out of order, to ask when we can extend that invitation to them, that perhaps you can encourage our chartered banks to participate more fully in this program because without their participation, we are never going to get to where we need to go.
MR. BOUDREAU: That is a good point, Mr. Chairman.
MR. CHAIRMAN: Thank you very much and our next meeting . . .
MR. BOUDREAU: Do we require a motion for that? I will make that in a motion, Mr. Chairman.
MS. MCGRATH: Mr. Chairman, I second the motion.
MR. CHAIRMAN: Would all those in favour of the motion please say Aye. Contrary minded, Nay.
The motion is carried.
Our next meeting will be February 27th. We will have the Department of Fisheries and Oceans.
I will entertain a motion to adjourn.
MR. BOUDREAU: I so move, Mr. Chairman.
MR. CHAIRMAN: We are adjourned.
[The committee adjourned at 2:58 p.m.]
