The Committee met at 9:00 a.m. in the House of Assembly.

Pursuant to Standing Order 87, Jim Walsh, MHA for Conception Bay East & Bell Island substitutes for Wally Andersen, MHA for Torngat Mountains.

CHAIR (Wiseman): Order, please!

For recording purposes my name is Ralph Wiseman.

I now call for election of the vice-chair.

MR. JOYCE: I nominate Harvey Hodder.

CHAIR: Harvey has been nominated. Do we have a seconder?

MR. SWEENEY: I second that.

CHAIR: Seconded by George. All those in favour, `aye.'

Carried.

I want to begin this morning by introducing the Committee. We have Harvey Hodder, who is vice-chair; we have George Sweeney, the Member for Carbonear-Harbour Grace; Eddie Joyce, the Member for Bay of Islands; and Jim Walsh, the Member for Conception Bay East & Bell Island. There are a couple of members yet to come. Fabian Manning, the Member for Placentia & St. Mary's, has just arrived. We are expecting Sheila Osborne, the Member for St. John's West, a little bit later. She is unavoidably detained.

I want to welcome the minister and his staff. I know he is well prepared for today. The procedure then is that the minister will have fifteen minutes to introduce his estimates. The vice-chair, Mr. Hodder, will have fifteen minutes to respond. What we have done is that we will change from one member to the other at ten minute intervals so that everybody gets an opportunity to ask questions. The minister can begin his presentation right after the Clerk calls the subhead.

CLERK: 1.1.01.

MR. WISEMAN: We now begin on 1.1.01. Minister, when you are ready you may proceed with your introductions.

MR. DICKS: Thank you, Mr. Chairman, and members of the Committee.

I would first of all like to introduce the staff who are with me. Phil Wall, whom I expect most of you know, to my immediate left, is the Deputy Minister. Next to him is John Bennett, who is the Assistant Deputy Minister. John, your responsibilities include -

MR. BENNETT: Debt Management and Pensions.

MR. DICKS: Finally, Terry Paddon, our second Assistant Deputy Minister. Terry is in charge of Fiscal Policy -

MR. PADDON: Fiscal Tax Policy and Tax Administration.

MR. DICKS: Right. Other than that I don't have a lot to say, except to say that over the last several years, as I said in the Budget, we made a lot of progress. I would see that where we would be going over the next several years, having done a pretty good job on the fiscal side, the management of the debt reduction down to a very manageable level, is to try to find a way to increase services in some cases, but more importantly to look to reduce the tax burden on the Province. I think it is a general problem in Canada. Our tax burden is so high compared with most of the rest of the industrial world. As you know, we have made some progress in the payroll taxes and others, but the personal income tax particularly remains much higher than it should be.

So I really do not have a lot more to say than that. There is no point patting ourselves on the back. I am sure there are people who would like to pat us elsewhere as Mr. Manning and Mr. Hodder will get to in a moment or two. I thank you for your indulgence, Mr. Chairman.

CHAIR: Thank you.

Mr. Hodder, you have an equal amount of time. No, you can take the fifteen minutes (inaudible).

MR. H. HODDER: No. I would like to make a suggestion if I could, Mr. Chairman. Maybe we could have the dialogue back and forth and then after you feel there has been an appropriate amount of time, then after fifteen minutes or whatever any other member who wishes to participate, then we can switch to another member. I will leave that at the discretion of the Chair. When he feels that the hon. the minister and I have had sufficient time then we can just - rather than get into these long, lengthy orations that probably will not achieve the purpose for which we are here.

I wanted to take the minister to the first page of his estimates which is on page 33 of the Estimates document. We note that there have been some changes in the salary allocation. For example, in the Minister's Office last year there was $36,500 in the budget, in 1.1.01.01. It was revised to $72,800 and now this year it is $164,300. I was wondering if the minister might want to offer some commentary as to why the increase from last year's budget of $36,500 to $164,300.

MR. DICKS: Until December I was Minister of Treasury Board as well, as the hon. member knows. My staff were provided for in Treasury Board Estimates. The departmental secretary was paid out of Finance but my executive assistant and my other two secretaries were in the estimates over in Treasury Board. When I moved over in December that is what bumped the $36,500 up to $72,800, because the expense of the other three staff had to be picked up in Finance. For this year the full allocation is $164,300. The other thing, too, is my ministerial salary was over in Treasury Board as well. So the ministerial allotment of $40,000 is in that $164,300. I will round it out if you do not mind: $40,000 for the minister's salary; special assistant, that is the executive assistant, $48,000; departmental secretary, $34,000; and political secretary, $32,000. Also in that as well there is a car allowance of $8,000. That comes out to $164,300. There is a minor amount there of $1,400 for step progression. I'm rounding. I can give you the exact figures if you want.

MR. H. HODDER: Given the split-up in the department, with the Treasury Board now being a separate entity and with the other changes that have occurred, is it fair to say that the total expenditures by government have not changed substantially? In other words, there have been corresponding reductions in other areas?

MR. DICKS: For example, in the Department of Justice, which is now part of my responsibility, there were three people up there. There was an executive assistant, a political secretary and a departmental secretary. I've just kept the departmental secretary. It is just a matter of allocating which department pays the expenses. To my knowledge, for general government purposes, there is no increase in expenditure. Each department has a departmental secretary and each minister has a executive assistant. I suppose I could have two if I wanted, but I think I can struggle through with one. You can have one or more political secretaries, depending on your need.

MR. H. HODDER: Thank you very much.

Going to page 34, subhead 1.2.02, we note there that last year there was a budget estimate of $1 million for Information Technology. That was really revised up by $66,700. This year there is no allocation whatsoever. Given the fact that there is always a need to have some support for Information Technology, how can there be that dramatic change, and how come there would be zero dollars allocated this year? If that is the case, where are you getting your funding for Information Technology services in this budgetary year?

MR. DICKS: The $1 million that we had last year was for a new system we purchased from Oracle for tax administration. We went through a debate internally as to whether or not we should contract out the management of our pensions, which essentially was what it was for. Maybe John can correct me if I am wrong. We went through that and we looked at the cost. We went to a group in Nova Scotia that does it. We looked at getting quotes as to whether or not, if we factored it out, assuming you would keep the confidentiality that you need for pensions administration you could do it cheaper outside, and came to the conclusion we could not. It would have been considerably more expensive to contract it out. The alternative to that was to spend $1 million to upgrade our current system to do it more efficiently, which was what we spent that money on. That was a major expenditure and that is why we had a special allotment in last year's budget.

Above and beyond that, the normal support, if you want, and minor computer purchases are all done through Treasury Board. There is a budget there of about $17 million or $18 million that departments have to compete for and to access. We do not have any outstanding or substantial IT needs this year that I am aware of. Is that fair to comment?

WITNESS: (Inaudible).

MR. DICKS: Yes, that was our major system that we needed to upgrade.

MR. H. HODDER: (Inaudible) Oracle system has now been totally implemented and is now operational?

MR. DICKS: Yes, implemented, very functional. Maybe John might want to comment. John, are you satisfied with the performance of that system?

MR. BENNETT: Yes, minister. I guess Terry - I'm going to pass it around here until you get - the operating head is, for tax administration, of course Terry Paddon.

CHAIR: If I could interject for a moment. When you speak can you identify yourself?

MR. BENNETT: I'm sorry. I'm John Bennett. The main development of that system was done last year. This is a development as opposed to an ongoing operational cost. Terry, you can probably -

MR. PADDON: The expenditures related to the upgrade of the system in tax administration was substantially completed last year. The $1 million was an expenditure for hardware that was required for that system. There is no additional hardware required. All the expenditures are made in that regard. There are some expenditures required in systems development work which is funded through Treasury Board. That is expected to be in place within the next couple of months. That is not in this allocation. This was strictly for hardware to upgrade equipment. That is completed now.

MR. H. HODDER: That is totally implemented now.

MR. DICKS: Yes. It is all installed and operational.

MR. H. HODDER: The Auditor General did make some reference to that in her report. I remember reading it here but I at the moment can't find the appropriate page. She does make note of the commitment by the minister and the department to introducing the new system.

MR. DICKS: It is funny, because the Auditor General is usually critical of departments spending money. My recollection was in that case she was recommending we upgrade our system.

MR. H. HODDER: (Inaudible). Exactly.

MR. DICKS: We shared her view in that case.

MR. H. HODDER: In fact, yesterday in the Budget debate I did make reference to that.

MR. DICKS: That is right, yes.

MR. H. HODDER: She did not find everything wrong with the department. In certain directions you are going in, in terms of the whole accountability process, there are some positive things she has noted in her report and that was one of them.

MR. DICKS: Fortunately, ministers have good staff to lead them in the right direction on occasion.

MR. H. HODDER: Sometimes the staff lead themselves.

MR. DICKS: That is true. That as well.

MR. H. HODDER: Going to the same subhead, 1.2.02, we have a revenue there of $75,000. I was wondering what that is and how it comes about.

MR. DICKS: Believe it or not, what we do is we recover from the pension fund the expenses of the department in managing the pension fund, so that $75,000 is for postage. That is what it costs us to send out all the pension related materials to our pensioners. We recover that from the as an operational cost of managing the pensions.

MR. H. HODDER: Yes, it is just there, and I suspected there would be a very logical and sensible -

MR. DICKS: Explanation.

MR. H. HODDER: If we could move on the next subhead, 1.3.01, Government Personnel Costs, we note that there have been substantial, again, increases in salaries from $3,734,500 to $5,416,100. I am wondering what has happened to have the personnel cost for the Department of Finance increase by that substantial amount of money, which is about $1.7 million.

MR. DICKS: It is $1.9 million of pay equity, and it is offset by $3 million worth of general declines. All the salaries in government are paid out of Finance, so if there are any increases or declines in expenditures they would be reflected in our Estimates. I should not say all the salaries are, but all pay equity. We also remit the amounts for CPP and (inaudible) and so on. So, to an extent, some of the salary in those costs to government are consolidated in finance. A lot of the salary expenditures are out in the departments, but pay equity is one of those that accrues in our department and that is why it was $1.9 million there.

MR. H. HODDER: The next subhead, 02., shows that the budget last year for Employee Benefits was $28,319,200 and it went down to $27,753,600 and it is now up to $30,693,600. Why would Employee Benefits jump that much in one year?

MR. DICKS: Well, I can just run down through them. This is not benefits that employees receive. It is amounts that we pay on their behalf. One thing we pay, for example, is CPP, the Canada Pension Plan.

The original in 1998 was $6,246,000. This year it will be $6,819,000.

WITNESS: The premium has gone up.

MR. DICKS: The premium has gone up, as you know. What has happened is that the federal government and the provinces have agreed to bring that fund, which is paid out of revenues, to make it into a fund and to increase the contribution of both government and employees. That is our share, and my recollection is that it went up by a quarter of a per cent, was it?

WITNESS: Each January.

MR. DICKS: Each January.

It goes up over four years, or - is it every six months?

WITNESS: Over about seven.

MR. DICKS: Over about seven years.

The stable state financing is about 10 per cent premiums because we reduce benefits. The cost was about 14 per cent, and I think nationally we were collecting 6 per cent or 7 per cent. Our final resolution was to bring up the contributions to 10 per cent and to reduce some of the benefits, which were fairly marginal changes. That is the reason that has gone up by five-hundred-and-some thousand.

Group insurance actually declined. If you do not mind, I will round it, and not give the exact figure.

MR. H. HODDER: Go ahead.

MR. DICKS: From $9,100,000 down to $8,800,000 -

WITNESS: EI, not group insurance.

MR. DICKS: I am sorry, unemployment insurance has declined. I just jumped ahead there. That is as a result of changes there as well. Do you remember last year, Martin was under considerable benefit to reduce the payroll taxes. One of the things he did was, he reduced the contributions by about 20 cents per thousand or something, wasn't it?

WITNESS: Yes.

MR. DICKS: Anyway, that is a consequence of that. The difference there is $269,000 in our favour.

Group insurance went up from $7,100,000 to $7,900,000. I am rounding here - it is actually $7,879,000 - so it has gone up by $700,000 and that is as a result of increased experience in the program.

The health and post-secondary education tax - that, of course, is the amount we pay. Of course, where we reduced it last year, last year we had to pay $5,793,000. This year we have to pay $5,644,000 because, as a (inaudible) of general tax application, government has to pay the payroll tax the same as every other employer. So, because we have reduced it, we get a benefit from that.

MR. H. HODDER: Would you give me that number again for the health and post-secondary tax?

MR. DICKS: It is a difference of $149,100. Last year our burden was $5,793,700. This year we will have to pay $5,644,600. In fact, I expect our payroll will probably be about the same or slightly higher but we received a benefit, as every other employer, with a reduction in the general payroll tax - which we increased the threshold, as you know, by $20,000 last year.

NISL stays the same, at $5,000 - NIS; travel insurance, $4,600, the same amount; NLC to GSL - tell me what that means, Terry - $29,000 is down to $27,900, a difference of $1,100.

WITNESS: (Inaudible).

MR. DICKS: GSL, general service leave maybe; NLC, Newfoundland Liquor - anyway it is some minor amount. It is under $30,000. I am not really sure exactly what it is.

The balance of all of that really is CPP has gone up, EI has gone down, group insurance has gone up, and health and post-secondary tax has gone down a bit. The net effect is an increase of about $2 million and a bit from budget last year - about $2,374,400.

MR. H. HODDER: Mr. Chairman, as the first fifteen minutes have now expired, I do not know whether any other member wishes to ask questions now, or will I continue?

CHAIR: You have another minute, actually. Anyway we will switch back.

MR. DICKS: (Inaudible).

CHAIR: Okay.

MR. DICKS: Maybe I could make a comment on the next one, which is interesting, Government Personnel Costs, 1.3.01. That is just a minor thing, but we are reimbursed by the Workers' Compensation Commission for our costs in the ease-back work activities.

One thing we are trying to do, just as a matter of general interest I think - it is not a cost item in any major way. On the employee side, when people go off on workers' compensation, it is often hard to get them back, so we have been actually trying to find ways to get people back to work. I do not mean that in the sense that people are malingering, but a lot of times you have to adjust the workplace - someone gets an arm injury or something like this, or people need special chairs, and also actively working with people.

There is a lot of theory and a lot of work going on in the whole idea of occupational - not therapy but sort of changing the workplace to suit people and get them back to work. We have been very active in that and last year we spent about $178,000 on it. I think it is a very worthwhile activity.

We do the pensions for government, and John and I had a meeting with the doctor who does the assessments for us on which we, in most part, base our decisions. The point was made that in Europe, if you are out on injury, 85 per cent to 90 per cent of the people get back to work. In North America, it is the exact opposite. Only 10 per cent to 15 per cent get back to work. We are not very active in the whole field of trying to get people back into active employment. Once you go on Worker's Compensation you are just generally - I would not say forgotten about, but there is not an active effort by the employers at Workers' Compensation to bring people back. It is just a matter of general policy, something I think we should pursue more, and that is part of our effort to do it.

His point as well was not from a cost standpoint but saying that it is very disabling in every sense when you are labelled disabled. It has a very substantial effect on a person's self-image and so on. He thought it was important that we all take efforts to try to easy people back to work and adjust the workplace and so on, very (inaudible). What is the doctor's name?

WITNESS: Ciaran O'Shea.

MR. DICKS: Ciaran O'Shea, yes. It is worth speaking to him about it because he is very convincing and very understanding of this issue.

CHAIR: Okay. Mr. Manning?

MR. MANNING: Under subhead 2.1.05., Financial Assistance to Crown Corporations, last year there were no dollars allocated in the budget and it was revised to $5 million, and we have no dollars allocated this year.

WITNESS: (Inaudible).

MR. DICKS: Yes, okay.

MR. MANNING: Page 36; sorry about that.

MR. DICKS: That was the grants and subsidies to municipalities. What we did was, before year end we set aside $5 million in NMFC to assist municipalities in financial difficulty. It is what we call the debt-relief program. So we have, over the last several years, put $17 million aside to assist municipalities.

I know, Mr. Manning, you represent a lot of small communities. It is probably not proper for me to name some, but there are probably some in your area and you are probably aware of it as well without going into great detail. I am not sure to what extent these are public knowledge, but a lot of communities find themselves in a position where -

MR. MANNING: We are looking to double that budget.

MR. DICKS: What's that?

MR. MANNING: We are looking to double that budget this year.

MR. DICKS: Oh, I see, yes. Well, I suspect one of your communities might take most of it, but it will certainly take more than that.

The point is that a lot of them have very substantial burdens so we are working with them to make them more self-reliant. We are also using this money to alleviate penalties on prepayment of debt because a lot of communities now are in an environment where they can go out and borrow long-term money, five and ten years at 6 per cent or 7 per cent from the banks.

Unfortunately, because they are borrowing over a period of years through NMFC, NMFC has a debt program that is spread out over many years and they are servicing debentures that are 12 per cent, 13 per cent and 14 per cent, locked in for ten, twelve, fifteen years, twenty years in many cases, and more. So the problem is that when people want to pay us off and take advantage of lower interest rates, the Province gets stuck with debt that has service for another five, eight, seven years, at much higher interest rates.

This is part of the program, to try to help municipalities become more independent and also to assist them with servicing their debt load. So far we have allocated about $6.3 million and we have restructured the debt of thirteen municipalities.

MR. MANNING: So you have no dollars allocated for that this year?

MR. DICKS: No, that is because - there is a fund set aside that does not have to be spent in any particular year, it does not lapse, and that kind of thing; we put it in NMFC. What we did is we topped up the amount we had by another $5 million. We have paid about $17 million out. We have allocated about $6.3 million so there should be about $10.7 million still in there.

MR. MANNING: Okay.

MR. DICKS: We are fairly prudent with it. Our concern was that the department would rush off and slash the money out to a whole bunch of municipalities and it has not worked that way. They are very judicious in the way they go about it because, of course, everybody wants it but not everybody deserves it.

The other side is that you have to pick and choose among a lot of crying needs in many cases, particularly with depopulation and lack of a regional tax base in a lot of rural municipalities in particular.

I think it is a worthwhile effort. It seems to be working. Our objective is to try to help these municipalities become independent of government generally and make their normal arrangements with the bank.

MR. WALL: (Inaudible).

MR. DICKS: Yes, the deputy minister points out that what we do is more than just give money. We also require municipalities to increase their taxes to a certain level. To my recollection it is about 9 mills. That is another factor of the program.

What it is, it is sort of an incentive to help municipalities become more independent, to make their arrangements with the bank rather than rely on NMFC and government, and also to bring their taxes up to a more reasonable level - or what we consider a more reasonable level anyway.

MR. MANNING: Do you have a figure of what the debts of the municipalities are in the Province, that are owed to the Department of Finance at the present time?

MR. DICKS: Well, the NMFC debt was about $600 million but, of course, that would not be all the debt of the Province. My recollection is that, because of these various payouts, the NMFC debt is reduced to something in the range of $400 million.

MR. WALL: (Inaudible).

MR. DICKS: The deputy minister points out that in Exhibit V to the Estimates, Public Sector Debt - page xi, at the back - you will see Municipal Debt on the bottom, $572.4 million. Over $100 million of that is the City of St. John's alone.

WITNESS: Which is not in NMFC.

MR. DICKS: Which is not in the NMFC.

Now, Phil, would that include all the debt of all the municipalities (inaudible)?

MR. WALL: Yes.

MR. DICKS: So that is a pretty reasonable estimate, is it?

MR. WALL: Yes.

MR. DICKS: The NMFC would be in the range of $400 million of that, or less?

MR. WALL: Four twenty-five.

MR. DICKS: Four twenty-five.

The NMFC debt - two things: One, it is probably going to come down if we continue to allow municipalities to pay out. The other part of it is that the portfolio is probably going to become, you know, less.

(Inaudible) will look worse because municipalities will end up keeping those the banks do not want. A lot of those do not have a tax base. Of course, we are ending up with a lot of the communities that do not have the ability to service their debt over time.

MR. MANNING: More of a general question on auditing: How does the Department of Finance decide who to audit?

MR. DICKS: It is funny. I could tell you the answer to the federal question. I don't know, Terry, how do we decide who to audit?

It is changing a bit now because our big audit effort was in retail sales tax. Now, we mostly have gas - and we are cluing those up. We have gasoline tax and tobacco tax, or alcohol tax.

MR. PADDON: (Inaudible).

MR. DICKS: Go ahead, Terry.

MR. PADDON: The tax administration audit system was set up to prioritize all the accounts, not just municipalities but anybody who was registered for our retail sales tax, either collecting it or paying it. It was basically just a system that assessed, I guess, prior activity in the accounts, certain elements of risk that might be related to a particular account, the volume that goes through it, and any collection activity that was on the account in previous years. Those sorts of factors went into the determination of whether a particular municipality or any account was selected for audit.

MR. MANNING: Is there a mechanism in place for a town, or a business for that matter, to - if the Department of Finance came out and said: Okay, you guys owe us - I will just use a figure -$500,000. Is going to the bank the only mechanism they have?

MR. PADDON: To repay that?

MR. MANNING: Yes.

MR. PADDON: Not necessarily. They could make an arrangement with the department themselves to pay off - each one is assessed on its individual merits. You have to look at the particular circumstances in each case, but we do look at individual proposals by particular taxpayers to retire outstanding liabilities.

MR. DICKS: Fabian, are you thinking of municipalities or general taxpayers?

MR. MANNING: General taxpayers.

MR. DICKS: If a taxpayer gets an assessment that they are unhappy with - maybe I will supplement what Terry had to say - they have the right to appeal under the Retail Sales Tax Act, for example -

MR. MANNING: Under retail sales, is there a mechanism to -

MR. DICKS: - or the Gasoline Tax Act. There is a method of appeal to the minister. Essentially what we were following - just to give you a sense of it - is this. I was concerned when I went there first because I didn't really understand. I would get these things: Write off so much tax for so-and-so. The general practice we followed with respect to the retail sales tax was this. Any interest over three years we wrote off, because we felt that if we could not get around to assessing a business on retail sales tax for more than three years, we should not hold them to pay tax.

We had something like 16,000 entities and individuals who remitted retail sales tax. About 8,500 of those are remitted monthly, but if you were below certain volumes you could remit annually. The problem with it was that for us to have the staff to audit everybody every month would be an impossibility. So we felt, as Terry said, certain criteria - people were lax in getting it in, or people who had bad experience with high volume - those were the people who you would generally try to assess. You would get around to everybody or most people eventually. We felt that three years was fair. If we did not do it in three years we would write off anything over three years.

The second thing was that if a business purchased something and did not remit the tax on it - a lot of times, for example, somebody would order a computer system from outside the Province, get it, and then we go in two or three years later and say: You forgot to remit the retail sales tax on it. We would not question whether or not they knew the difference. We would assess them on it, and we would assess them interest.

On the other hand, if a store, hotel or something like this collected money from the public and did not remit that tax, well, they had the use of our money, number one, which is the reason we (inaudible) interest, and to some extent that was a pretty clear obligation to remit to us. In that case, we would try to charge a penalty and interest.

Those were the three criteria. The fourth was just a common sense thing. If you are in a situation where collecting it will bankrupt a business, we try to make an arrangement to collect the tax in some other fashion. You can give them more time to pay, or in some cases write down the amount. We were reluctant to do that, but on the other hand we are a taxing authority and we are sensible about it. If you push someone into bankruptcy you are not going to get anything. Sometimes you have to make choices like that.

Generally speaking, we try to have consistent policies that we apply to all taxpayers, because the last thing you would want is for you to be paying taxes on a certain amount and the person down the block getting it written off. We just try to manage it as a collection business.

MR. MANNING: There is an appeal mechanism to the minister.

MR. DICKS: Yes, that is right. Those are the criteria we follow. There are really four of them. People come in and say: It is terrible, I do not want to pay it, and I shouldn't be. Well, sorry, but if you had paid and you had paid, you do not like it. You have to pay it too. Within that we thought there were fair mechanisms that should come into play based on our own inability to audit everybody on a timely basis, and secondly to ensure fairness among collection efforts of different groups.

MR. MANNING: When you say the retail sales tax under three years, does the gas tax fall under that scope also?

MR. DICKS: I do not see the gas tax very often. We do not get many appeals. Terry, (inaudible) to get around to that?

MR. PADDON: The gas tax is a little different because it is not quite the same as the retail sales tax where you have a high volume. You do not have the same volume of collectors. There are probably only maybe a couple of hundred remitters. Usually it is collected at the wholesale level so it is not quite the same type of risk.

MR. DICKS: It is the same thing with the tobacco tax, which makes it an easier tax to administer.

MR. MANNING: Yes. I will move on for now, Mr. Chairman.

CHAIR: (Inaudible).

MR. H. HODDER: If I could go back to page 35, Debt Management. We did note that in the Salaries for this particular heading, 2.1.01.01, that last year you had Salaries of $598,400. That went to $652,500 and we are now back to $582,400. Has there been changes in staff, reductions in staff, in that area? Is that change reflected in the salary allocation here?

MR. DICKS: That amount is pretty stable from last year on budget. As you notice, last year the budget was $598,400 and went up to $652,500. The reason for that increase was we had a workforce reduction program the year before, so we had to pay out a severance and redundancy for an employee who retired. He was at a fairly senior level. That is what accounted for the additional $54,000 or so. It is down a little bit this year. I do not think we have lost very many positions, but the one thing we do there is this. Three positions under our sinking fund and two positions under NMFC are recovered from the agency. It does not show up here. That would not affect these figures. It looks like a position or half a position in the difference.

WITNESS: We filled the vacant position at a lower salary. (Inaudible) was a high salary.

MR. DICKS: Oh I see, that is what happened. That is right. When we phased out the person last year we filled the same position with a person who has a lower salary, a more junior level. So, that accounts for the difference from $598,400 down to $582,400.

MR. H. HODDER: In the Revenue-Provincial we have a revenue here of $236,500.

MR. DICKS: I am sorry, what head note was that?

MR. H. HODDER: The same head, 2.1.01, under section .02 under Revenue-Provincial. There is a revenue here of $236,500 for this year's budget which is consistent with other years. What is the source of that revenue? Is that all from the Newfoundland Municipal Financing Corporation? Is that for the management of it?

MR. DICKS: Well, yes. It is not all from the NMFC. The first amount we get is from the sinking fund. We have one-half the salary of the manager of cash management and investments, because of course they manage our general revenues that we get, $3.4 billion or so, as well as the sinking fund which is very substantial. It is over $1 billion now, isn't it? We allocate the salary back to the sinking fund as an expense, 50 per cent of it. That is because about half his time goes into that. We also allocate to the sinking fund all of the salaries of three staff who are fully employed with the sinking fund. They manage the purchase of securities in the market and so on. Pardon me?

WITNESS: (Inaudible).

MR. DICKS: Accounting support on that. As you can imagine, with a fund that size there is a considerable amount of administrative work.

Secondly, the reimbursement from the NMFC is one-half the salary of the manager of capital markets and financial assistance programs. About half of his or her time goes into that as well. We get the salaries for two NMFC staff. We also get one-quarter of the staff of the divisional secretary and that is our proportional allocation, the amount of time that the secretary spends in NMFC related work. The reason that it is slightly decreased this year is that earlier a factor I mentioned was that we recruited somebody at a lower pay level for that position. That is manager of cash management and investments. That is the amount we recovered from the sinking fund. The salary went down, so naturally half the recovery went down as well.

MR. H. HODDER: Under the next head, which is 2.1.02, Crown Agencies-Recoveries, we had a budget there last year of $69 million. We had a reduction there to $17 million, and now we are up to $145,900,000. I wanted to ask a question relative to the -

MR. DICKS: I thought you were going to congratulate us on finding all the additional revenue.

MR. H. HODDER: - source and to a breakdown of the recovery of the dividends by a Crown agency.

MR. DICKS: These are all the Newfoundland and Labrador Hydro dividends. What we have been doing as I mentioned in the Budget - certainly in the lockup and so on - is that where we have had effective services since the last number of years, part of what we have been doing is we have been moving out monies. As I mentioned in response to the Fabian's question: NMFC, we have been setting up a debt relief program, we have paid school board debt, we put out monies to hospitals and so on like that. We set up the school program, we put out the money to build them and so on.

The other thing we have done is we have managed some monies forward. Because in Newfoundland there is always a looming disaster a year or two out. That is sort of the nature of our Province because we are so dependent on Ottawa's equalization transfer payments and there is less certainty with that. If that picture should change dramatically at any time you could have a substantial downward trend. If we have additional monies we try to even out what could be a very lopsided effect on our budget by managing monies forward.

Last year we have could taken $69 million from Hydro based on the dividends we had asked for them. In the end we only took the $17 million. I will give you an exact breakdown. The $17 million, is that the regular dividend? Why did we only take $17 million?

WITNESS: (Inaudible). That was all we required.

MR. DICKS: That was all we required really. That is the regular Hydro dividend of $12 million. Maybe I can just go through the list of all the various amounts we get from Hydro.

MR. H. HODDER: Yes.

MR. DICKS: What it is is we get a regular dividend from Hydro, based on its general operations, of $12 million. In the $17 million we took last year there is that $12 million. In the last number of years the second thing we took was a CF(L)Co pass through. Of all the power sold in Labrador, the amount that we get - it varies a little bit - but last year it was $5 million that we took. That gave us the $17 million. I will just run down through this.

The regular dividend of Hydro has been increased. The regular dividend in 1999-2000 will be $32 million. That is the regular dividend we would take. In addition to that we have deferred $22 million from previous years, including some from last year. That would give us a total of $54 million. These are all the amounts that go into the $145,900,000.

WITNESS: Yes.

MR. DICKS: Of the $145,900,000, $32 million is a regular dividend, and there is $22 million that we have deferred, for a total of $54 million that we can take this year. In addition to that, we have required - you remember back in 1995 or maybe 1996 when we had the problems with the Budget and trying to balance it and that kind of thing. We went to Hydro and said: Look, we have $450 million worth of retained earnings here. The taxpayers are seeing very little return for it. We felt that Hydro should be contributing more to the Province. The bottom line is we said: We want a special dividend out of Hydro. They squawked a little bit and we squeezed. They agreed that they would pay us another $15 million a year as a special dividend. As events turned out, we haven't needed to take that in any year. This year we will get the special dividend of $15 million plus, since we have demanded it, we have not needed to take it. So we have built up three years of deferred special dividends for another $45 million, for a total of $60 million.

Just to recap where we are, you have the regular Hydro dividend and the deferrals.

MR. H. HODDER: Fifty-four million dollars, $15 million, and $60 million.

MR. DICKS: No, $54 million and $60 million.

MR. H. HODDER: That is right, yes.

MR. DICKS: Because in the $60 million there is the $15 million plus the $45 million deferred from the three previous years, for a total of $60 million. So you have the $54 million plus the $60 million now. The CF(L)Co pass through - CF(L)Co is owned, basically, 65.8 per cent by Newfoundland Hydro and 34.2 per cent by Quebec Hydro. This is our share of the profits of CF(L)Co. The regular dividend or pass through we would get will be this year $16.9 million, plus we have deferred $15 million from previous years, which will give us $39.1 million on the CF(L)Co pass through.

WITNESS: (Inaudible) $31.9 million, (inaudible).

MR. DICKS: I am sorry, $31.9 million. If you add up the $54 million plus the $60 million plus the $31.9 million, it is $145,900,000 which is where that figure comes from. If you add up the deferrals you would have the $22 million in the regular Hydro dividend, $42 million in the special -

MR. WALL: Forty-five million dollars.

MR. DICKS: I am sorry, $45 million. Thank you, Phil. Then there is the $15 million, which will give you a total of $82 million in deferrals. The regular amounts we would take would have been the $32 million regular dividend, the $15 million Hydro special, and the CF(L)Co pass through of $16.9 million, for a total of $63.9 million.

WITNESSES: (Inaudible).

MR. DICKS: Okay. That is right.

MR. H. HODDER: That does add up to $145,900,000.

MR. DICKS: Yes. I was just asking the Deputy Minister the question about last year. When we negotiated with Hydro Quebec and got an agreement in principle on development the Lower Churchill, part of the benefit to the Province was an immediate recall of, I think, 130 megawatts of power which we immediately sold. The net amount that we realized on that, because it was sold on our behalf, (inaudible) recall it was about $20 million. I was just asking where it showed up. That shows up in our regular dividend. That is why our dividend was increased from $12 million to $32 million.

MR. H. HODDER: In essence of course what we have done here is we have used Newfoundland and Labrador Hydro, which of course gets its money through the rate payers who pay on a timely basis. Is there any concern in government that we are using Newfoundland and Labrador Hydro as an indirect taxation vehicle?

MR. DICKS: No, because this does not effect the rate base. What you have to remember is that Newfoundland and Labrador Hydro has retained earnings of $450 million. That is money that it has sunk in its operations and so on like that. This will not affect the rates because it is money they have, not necessarily in cash lying around, but tied up in assets and depreciation and so on like that.

The other issue is that there is a debt-equity ratio thing. Manitoba Hydro, which has a better rating than Newfoundland and Labrador Hydro, has about a 90-10 debt ratio. There was a point at which they wanted to get the debt to equity ratio down to 80-20 or preferably 60-40. That was in anticipation of privatization of Newfoundland and Labrador Hydro, because of course if you go to the markets the better your debt-equity ratio is - if you want to privatize something - the more likely you are to command a better price for it.

At the time, you remember the day well, when the government of the day wanted to privatize Newfoundland and Labrador Hydro, the issue was: We have to improve the debt to equity ratio. When the decision was made not to privatize it, and we looked at a reasonable return to taxpayers, we believed that it was fair. I think we do not need to have that close a scrutiny of the debt- equity ratio. We do not have to follow it that peripherally as you would if it were a publicly traded corporation, because essentially Hydro's ability to raise capital in the markets is solely dependent on the Province's ability to - let me put it this way, their debt rating will be no different than the Province's. There is not going to be a time when Newfoundland and Labrador Hydro has an AAA rate and the Province has a BBB. That just will not happen. Because of course their credit worthiness is reflective of general economic circumstances in the Province, as is the government's. Hydro basically raised the money with our guarantee anyway.

We discussed it with our fiscal agents to ensure that it would not cause any problem with them in the capital markets. If you ask Hydro and they were being frank and honest, they would probably say: We would rather not give the dividends because we want to get our debt-equity ratio improved and all this kind of thing. We just say to them: Thank you very much, but we own you, and fiscal agents don't say it makes any difference. If the Province needs the money we are not going to let you sit here on a very substantial nest egg and raise taxes or cut hospital and educational services, so have a nice day. Not that I would ever say anything quite that barely and nastily to people, but there probably would be a variance in point of view.

From our point of view as a province, while we respect Hydro and its board and its right to manage its affairs, where we are with the shareholder we have the right to direct them to handle it in a way that reflects the best interests of the 543,000 shareholders out there in the Province. They agree with us, of course.

CHAIR: Time is up. Yes, do you have a question? No? Okay.

Do you want to continue or does Fabian want -

MR. H. HODDER: I just want one more.

CHAIR: One more? Okay, go ahead.

MR. H. HODDER: I just want one more follow up and then -

MR. MANNING: By leave.

MR. H. HODDER: My colleague for Placentia & St. Mary's is giving leave.

The reality is, in the public's mind at least, that if you have people who are the investors with Newfoundland and Labrador Hydro, they must get an adequate return. While you and I remember all the debate we had here during the Hydro privatization and all the ratios with Quebec and all of that kind of thing - I do not want to get into all of that stuff, but we all remember it -, but when you are taking out this kind of money, I am not comfortable with your answer that it does not have any impact on the average household. Because Hydro will say to us that they have to pay out this kind of money, substantially big monies, to the Province. While the Province does own it, and while the Province is sure to get agreement ultimately from Hydro, that if you are taking out these kinds of dollars that it does not have an impact on the ordinary citizen who is paying his or her power bill on a regular basis.

I was wondering if you could elaborate on that. Because your position is that it does not have an impact on the average citizen. Since I am not convinced that it does not, and I am sure Hydro's arguments might say something different, I'm wondering how you can give us reassurance that we can take this money from Hydro and it is not having any impact on the average householder.

MR. DICKS: That is right.

The first thing to realize is that the only special dividend is the $60 million, not the whole $145 million, because the rest of it are regular dividends. I will just take a little example. The $20 million we receive from CF(L)Co as a pass through, for example, has no effect on their balance sheet. They just pass money through to us; and the regular dividend is very modest when you consider Hydro has really $450 million in retained earnings, so you get $12 million of it.

WITNESS: It is over $500 million.

MR. DICKS: It is over $500 million, so do the math; we are getting less than 6 per cent even at $12 million. That is a fairly modest dividend.

The thing is - just in comment - you mentioned about return to investors. The investors who buy bonds as such get the same return because their rate is fixed, and the sense of what we should be doing with Hydro in terms of its corporate arrangements and debts and so on is different than if you had people out there who are shareholders and you had, say, 10,000 people who owned 10,000 shares each in Hydro and they would be looking for returns on their equity. We are the equity shareholders in Hydro and, from my point of view, what it would cost them to service $60 million would not substantially affect the rate base.

The other aspect you have is that they have to go the Public Utilities Board for a hearing, for example, before they can change the rate base and the Public Utilities Board would have to decide whether or not any interest payments on the $60 million that we would take out of it should be attributed to the rate payers and so on like that.

To service the debt of $60 million is not going to appreciably affect the rates of the electricity in the Province, when you look at the total amount that they have out there, because you are only looking at the debt servicing cost: $60 million at, say, 7 per cent roughly, less than $5 million, and you spread that over the rate base of - the other thing, too, is that I think what it is, is that it would also force Hydro to look more carefully at its operations and find efficiencies there as well.

Sometimes to have a higher debt load is a good discipline for corporations as well. If they have too much equity, it is not good. In fact, I was down in the States some time ago and I went to one of these management organizational things and one of the criticisms the professor of accounting had, of a lot of these charitable institutions - as you know, in the States we talk about their health system being a public system or being a private system and paying for it. What we forget is that these are all charitable foundations, for the most part. The fact that you have to pay does not mean that people are making lots of profits.

Of course, in the States, if you are on a major hospital board or a symphony board or a museum board, it is quite a distinction and honour. Normally, people are very wealthy.

One of the criticisms that the professor of accounting had was that they owned the building, they owned too much, and they had not financed it. In her view, what they should be doing is taking the equity out, financing more of it, because it provided more discipline when they had to meet a debt load and it made them more conscious of providing a service to the community.

So, sometimes having something without any debt load can make you pretty lazy and inefficient because you do not have to meet the discipline of a debt burden and servicing it.

MR. HODDER: So you intend to keep our debt load up in Newfoundland and Labrador?

MR. DICKS: I will tell you one thing, it is a discipline. Well, you know, there are corresponding arguments in another way. For example, maybe if you reduce taxes it makes us all more efficient. It is always a worry that if you reduce them you may have to raise them again. On the other hand, if you reduce them you are going to be reluctant to do it and you may have to make some tough choices; but at least it forces you to consider things that you would not otherwise do.

Sometimes you have to make choices like this in decreasing revenue in one way or another, whether it is through additional debt or it is through reduced revenues, which have essentially the same impact. It does cause you to look more closely at things that you would normally just not examine. It looks at where your money (inaudible).

CHAIR: Okay, thank you, Minister.

Mr. Manning.

MR. MANNING: Minister, I have just a couple of questions on the HST/GST combination. A couple of years ago when that was announced, I think it was a three-year federal payout spread out over a three-year period, if my memory serves me correctly. Is this the last year for that payment?

MR. DICKS: No, it is reducing this year. I think we have one more year after this. It was $125 million for two years and then it went down to, was it $50 million, Phil?

MR. WALL: Sixty-three million.

MR. DICKS: It was $63 million, and next year it comes down to $31 million.

MR. MANNING: The collection of that is being cost-shared with the federal government?

MR. DICKS: The federal government will bear all the expenses of collection of the HST, which is part of the attraction on our side. There is no allocation back to us for their cost of collection. Is that correct?

WITNESS: Yes.

MR. DICKS: Yes.

MR. MANNING: There is no allocation on it, okay.

I just want to step ahead to the health care board debt. In the Budget you announced around $40 million for health care debt. Will that eliminate all health care board debt in the Province?

MR. DICKS: Just to the end of last year.

MR. MANNING: That is March of 1998?

MR. DICKS: That is right, 1998. The debt they have accumulated to the end of 1999 is not provided for. You have a very difficult situation in the Province from a management point of view. We have put out, I guess, about $800 million to the health care boards now. The budget has gone up in health care, as you know, by almost $200 million over the last several years. It was under a billion dollars about two or three years ago. Now we are up to $1,178,000 or $1,179,000, something of that sort.

The institutional budgets have increased substantially, as you know. Last year we gave an additional ten, and then we gave an additional fifteen, and that is just on their base budgets. Now, as you know, we have been putting a lot of money out to the hospital boards for nurses and so on like that. We will have a look at what the consolidated amount is, but it has increased substantially.

Part of the issue that all of us have identified - you people use an election campaign - and something that we had identified as well, is that you are putting out all of the money and there is no direct accountability back to government. So what you have is a situation where you have budgets, and if you assume the budgets are properly set then people should live by them.

When they run deficits, the question is two-fold. First of all: Why did you not allocate sufficient monies to provide the services that you expect to the boards? Secondly: Do they spend whatever they want anyway and ignore it because they are not accountable back to government? That is really the issue.

What we intend to do is to have a new accountability framework to ensure that we are getting the right accountability. I think most of us would agree that if we are underfunding health care boards, we should provide the monies to them to provide an adequate level of health. You will always have waiting lists, you will never keep everybody satisfied, because that is the nature of the thing. If you put another billion dollars in health care, someone will still have to wait somewhere for something.

All that being said, you want to make sure that reasonable expectations are met and that we have the best health care we can afford.

I guess it is a long answer to your question, but my concern is that you keep paying off debt and yet we still do not have the level of accountability we would all want. We are moving in that direction - and not a criticism of the administrators because they may be doing yeomen work, but you see variances in the boards and it raises issue at general government levels as to whether or not some boards are more efficient and better than others; whether or not we are providing appropriate funding, because maybe we are not in some cases; and, thirdly, whether or not people are just ignoring the budgets and soldiering on, knowing that we are going to pick up the tab and that they are not really accountable back to their own boards which, of course, are appointed by (inaudible).

Some of the same issues are there in the school system as well because we paid off school board debt. I am not making a conclusion on that, but those are the types of questions that arise that I think we, as legislators, have to account back to the public for.

MR. MANNING: I am just wondering, as you said there, in regard to some boards seeming more efficient than others. I guess all walks of life are like that.

I am just wondering, from the Department of Finance point, in the Budget you also mentioned $6 million to cover the cost of ensuring that all boards have a common financial system to provide accurate and timely financial information. What is the plan, I guess, of the Department of Finance in regard to ensuring that? It seems like - we will certainly agree on this side that you underfund the health care boards, but -

MR. DICKS: Well, I would not jump to that conclusion. A lot of people, including people of your persuasion, say there is lots of money in the health care system but it is just not appropriately managed.

MR. MANNING: In some cases, but I think there is a (inaudible) feeling out in the Province when it comes down to accountability and management in a lot of cases also.

I am just wondering, from a Department of Finance view, what is this $6 million allocated for? How does the Department of Finance plan to ensure that it is spent in the proper manner to ensure accountability of these health care boards? They do, as you say, deal with the largest part of the Budget for the Province.

MR. DICKS: The Department of Finance technically only raises and collects the money for government. The Treasury Board and Cabinet determine where the money is allocated in the budgetary process each year. The responsibility to determine whether or not the money is well spent really resides with the line department, be it education, health, social services, and so on - or the new name for social services. That is where the line of responsibility lies.

Having said that, we raise the issues if we have concerns about it. This particular amount of money is to update the financial systems. I think we have already done the ones in Western and Labrador.

If you go into an institution, in some cases they cannot even tell you where they are in the year because their financial systems are so antiquated. I do not know if they are still using ledgers and books, but one of the realizations that the Department of Health had and came back on was: Look, we have to have better accounting systems, better computer systems in place.

Phil says, and I am sure the Auditor General will comment on it as well, because it is very hard to demand accountability of people when you do not give them the tools to do the job. It is also very difficult for us to go in and try to figure out where they are when they cannot tell you where they are, sort of thing.

In some cases, and I not deciding blame here, I am just raising issues that we all need to address, one of the primary things that we had to do with the health care system in several of the boards was to update their financial management systems.

Frankly, in one case when the department when in the directors, number one, did not know what their budget was and, secondly, could not tell you where they were and how much they had spent the year. We all know the basics of business, but one of the things you have to know is how much you have to spend and how it is being spent.

As I just say, before you can come to the conclusion that we are underfunding the system, we have to make sure that we know where it is being spent and whether or not the service levels are comparable, whether it be in Corner Brook, Labrador, Central Newfoundland, or here on the East Coast, because each area provides different services. St. John's is the tertiary centre so you have to make sure that given the services we expect in the different regions that we are providing them with adequate funds to do the things that are expected of them.

MR. MANNING: We cannot leave them with the impression that they are going to be bailed out each and every year, because then the accountability is not in place either, is it?

MR. DICKS: I agree with you completely. That is why I say, if you say they are underfunded, I think that is the wrong conclusion. I think we have to assume that with all the money out there - you are spending, in this Province, $1.2 billion on health care. I saw the budget for New Brunswick which only has another $250,000. Their health care budget is only $1.4 billion. If you look proportionately across the country, you have to look at where we are.

The other thing you have to take into account is, it gets pretty complex because then you look at some of the other provinces and they are allowing their institutions to run up debt and they are not taking it into account in the provincial budget.

What we are doing is, we are trying to consolidate and see where we are. The other thing you have to recognize in Newfoundland and Labrador is the geography makes it more difficult. We have to provide services over a larger area; our ambulance services, air ambulance, and so on add to our costs. The number of hospitals we have here, I do not know, I think we have thirty or more institutions (inaudible).

The City of Ottawa, which has more people, must have three hospitals. We probably have as many people as Mississauga and we probably have thirty times the number of institutions, but that is in the nature of providing the services to our people.

When you make comparisons of the health care system, you have to be very careful as to how you do it. From my point of view, and I think from the number of people that you speak to, the first thing you have to do is ensure that the money you are giving is being spent on the things that it has been allotted for and make conclusions about whether or not it is adequate.

MR. MANNING: Can you tell me, Minister, what this Province received in revenue last year from the Upper Churchill contract?

MR. DICKS: From the Upper Churchill contract? CF(L) pass through was about - well, we have $20 million in special dividends, that is the result of recall. The regular dividend was about $5 million. I think the total amount that we net on the Upper Churchill contract is in the range of $5 million to $10 million. It is very little money. In fact, if you remember, it was an issue some years ago and it is actually going to decline and go in deficit on a cash flow basis so we get very, very little return.

I would have to double-check that with the Minister of Mines and Energy of that department, but it is very modest, maybe $5 million or $6 million, very, very little money.

MR. MANNING: One other question. During the Budget we also announced an increase in minimum wage -

MR. DICKS: Right.

MR. MANNING: - not to take place until October of this year. That still is the lowest minimum wage in the country. Well, we are on par with one more province.

MR. DICKS: (Inaudible) does. I think we get up to - I think New Brunswick is at $5.75 as well.

MR. MANNING: Yes. Is there any feeling in the Department of Finance to look at that over the next year, into bringing it up at least on a level with the lowest other province in Canada?

MR. DICKS: Well, it is not a Department of Finance recommendation. It comes out of the Department of Environment and Labour. They are responsible for labour standards in the Province. We looked at it.

One of the issues you have is that in Newfoundland and Labrador I think we have one of the highest percentage of workers who are dependent or paid at the minimum wage, which is about 9 per cent or 10 per cent, somewhere in that level.

It is still relatively substantial. In most other provinces, the workforce who are actually paid the minimum wage is less than that. The issue I hear from the business community is, if you raise the level beyond a certain amount it affects people's ability to hire other people and you have to be careful. If you were to increase it to $9 or $10 I think you would see a lot of jobs (inaudible) the economy. The same argument that on the payroll tax the payroll burden for small business in particular is pretty difficult and you know people spend a lot of hours.

Just an interesting statistic, some years ago I saw that if you work fifty hours in your own business you make $40,000, if you work fifty hours for somebody else, on average in Canada, you make $54,000. The myth of getting into business and making a lot of money is not very true. Normally, most people I have seen work much longer hours much harder for a lot less return than if they had a regular job from somebody else. I'm not a proponent that you shouldn't raise the minimum wage, but I think you have to get a sense that there is a level that if you go beyond you will start losing jobs in the economy.

A lot of people are happy, and they want to get that first experience as well. A lot of these jobs are for students and part-time people. It is a good way to get into the workforce. A lot of people do not stay at minimum wage for a long period of time. I think what we will do is try to look at a program to bring it up over time, but what the interval would be - and I suspect we would do it in twenty five- or fifty-cent segments or something like that. If we are starting to require more pay per minimum wage than Nova Scotia or New Brunswick, I think it will have an affect in the economy.

WITNESS: (Inaudible).

MR. DICKS: The Deputy Minister points out something as well. In answer to your earlier question about how much we make out of Churchill Falls, and I overlooked this, we get an actual dividend, but in addition to that we get a royalty of about $5 million. If you look in statement II, Natural Resources Taxes and Royalties, at $27,800,000, well, $5 million of that approximately is in royalties from the Upper Churchill. I guess our total take in dividends and royalties is somewhere in the vicinity of $10 million.

CHAIR: Mr. Manning, I understand from the vice-chair that he would like to have a break. We normally do take a break. I understand you can clue it up by 11:30 a.m.

AN HON. MEMBER: (Inaudible).

CHAIR: The minister is pretty short on answers, if you are going to clue up by 11:30 a.m.

MR. DICKS: The minister could be shorter.

CHAIR: We will reconvene at 10:30 a.m. Hopefully we can clue it up by 11:30 a.m.

CHAIR: Order, please!

We are seven minutes later than we had planned it. I would hope that the Member from Waterford Valley is going to be kind enough to subtract his time now from 11:30 a.m., which will make it 11:23 a.m. when we should be able to clue up, Mr. Hodder. You have already taken up seven minutes now. Being a good committee member, I know you will clue up at 11:23 a.m. The other two members, I will give them a blast when they get back. We said we would reconvene at 10:30 a.m. It is now 10:37 a.m.

Mr. Manning, you may have been in the middle of a statement. You took a breath, and I said we would take a break.

MR. MANNING: You took my breath away, Mr. Chairman.

CHAIR: If you want to, I am courteous enough to allow you to finish the statement you were maybe about to make.

MR. MANNING: Mr. Chairman, you took my breath away so I am going to pass it over to my colleague.

CHAIR: Okay, then we will go to Mr. Joyce.

MR. JOYCE: I pass, Mr. Chairman.

CHAIR: Mr. Joyce passes. Okay, Mr. Hodder, you have ten minutes. Before you do that though, I want to say to - no, go ahead, I will wait until the other member gets back.

MR. H. HODDER: Thank you very much. If I could, Mr. Minister, return for a moment to page 35, Crown Agencies-Recoveries. I have one follow up question that I intended to ask at that time. Given the fact, of course, that we are drawing down extra monies this year - and we went through the analysis of the $145,900,000 - and given the fact that we have reached the point on the Term 29 monies, and next year we will have $31 million coming by way of harmonization recovery, and we will have drawn down the substantial amounts that were due from Hydro, the $82 million you mentioned in your Budget Speech, what strategies do you have in place to make sure that next year we can be in a balanced budget position, given the fact that these sources will have substantially changed?

MR. DICKS: As I mentioned earlier, there is always a looming disaster a year or two out in Newfoundland and Labrador, so it is always a matter of trying to manage your affairs in a prudent manner. There has been a general increase in economic activity. One of the reasons why we implemented the HST was to alleviate the retail sales tax burden on people generally in the Province to discourage out-of-province shopping, because you have equalized it virtually with most other jurisdictions in the country, which has a 15 per cent retail sales tax rate. The third thing was to increase business activity.

That has been successful. The ability of businesses to claim the rebates on the HST has been a substantial benefit for the business community. You are seeing that in increased activity. Frankly, we believe that generally across the business sector, and secondly coupled with the resource developments, will lead to increased activity in the Province.

Last year we had GDP gross of about 5 per cent and led the country. This year, 4.5 per cent, and we expect that trend to continue even with the depleted or depressed commodity prices. The oil and gas sector in particular still had substantial investment. You are looking at the mining sector and you still have very strong investment in Labrador West, and the forestry products sector is doing very well as well.

The pious hope, at least, is that the tax measures we have taken and our approach to government will lead to increased revenues or increased activity, as opposed to increased taxation.

MR. H. HODDER: If I could, I wanted to ask some questions to the minister from the Consolidated Fund Services. I know there is provision to ask these types of questions in the House itself when we come to these particular matters, as there is in all of the Estimates. I do find that it is better, if I could, with the indulgence of the minister, to direct some questions on this particular budget allocation at this time at this Committee level.

MR. DICKS: Yes.

MR. H. HODDER: On page 5 we note that the entry is 1.1.02, Treasury Bills. We note that the interest expense in treasury bill borrowings had changed from $17,545,000 to $19,031,900 to $19,207,100. Why would there be a variation there? There are about $1.5 or $1.48 million dollars' variation?

MR. DICKS: Yes, I am sorry, I was just a little busy finding it. You were saying: Why did we vary last year or this year?

MR. H. HODDER: Last year, basically we put in the budget $17,545,000. Actually it went up to $19,031,900, and this year we have $19,207,100. Why the variation here? Is this because of change in the interest rates or -

MR. DICKS: Yes, exactly. Each year we have to predict, when we do the budget, what the exchange rates will be with on our general debt with the American dollar, Japanese yen and Swiss franc, which is where our offshore monies are. We need to estimate the Canadian dollar. Secondly, we need to estimate the costs of borrowing in the Canadian market as well. We need to have some sense of where the dollar will be going and where interest rates will be going. So we make an educated guess at that.

It is the same thing for our Treasury Bills program, which is money. As you know, we put out $30 million for over thirteen weeks for a total of $390 million revolving. Last year at the beginning of the year we estimated that the returns to the Treasury Bills program would be about 4.5 per cent. As it turned out, interest rates strengthened, so our returns were closer to 5 per cent on that. That accounts for the increase of approximately $1.5 million.

MR. H. HODDER: What processes do you go through to determine the expected interest rates and the expected rates of exchange? Is there any particular formula or process you use for that?

MR. DICKS: Yes, there is a very particular process. We consult generally and we see what the banks are predicting, we check with our fiscal agents, and then we eviscerate a chicken and check its liver. There is a little bit of witchcraft involved.

What we generally do is we tend not to be overly optimistic. I remember the year before I went to a little dinner or breakfast or something with the Bank of Montreal. (Inaudible) -

WITNESS: (Inaudible) CIBC.

MR. DICKS: No, at the time for the Bank of Montreal. The chief economist was predicting the Canadian dollar was definitely going over eighty cents, eighty-two cents. It was trading at about seventy-two cents at the time. Then of course by the end of the next quarter it was down in the basement at about sixty-six cents. You have to be a little sceptical. We tend to be moderate and not be too optimistic in our assumptions so that gives you some latitude.

What you don't want to do is, for instance, assume right now the Canadian dollar is going to seventy-five cents in the next six months. You can assume that but if you budget for it it is a different matter. We have to be careful about how we -

MR. H. HODDER: It is a more cautious approach.

MR. DICKS: Yes. It becomes the Department of Finance, regardless what the government is. We have to give sound, stable, reasonable advise to government and then hopefully, in most cases, they accept it. We tend to be prudent. We tend to look at the variations and the fluctuations. I mean, there is a range of predictions. From our point of view we have to come to the centre. We cannot afford to take the most optimistic predictions. If you do that you could be very, very disappointed. I think it is a good sign when our Treasury Bill program does better than anticipated.

It can work the other way too, because we had major problems last year in terms of the Canadian dollar going down. It could have been disastrous had we assumed the most optimistic predictions. As it was, our trading losses or our debt servicing cost were pretty manageable. I think the total net loss or variation was only about $3 million or $4 million on a total debt servicing budget of about $500-plus million, or something in the vicinity of $500 million.

I must say, in compliment to the officials, they do a very good job of managing our monies and giving us reasonable predictions of what we can expect in the exchange rates and the interest borrowing cost.

The other thing we do, just as general debt management, and these are the officials' advice, is, if we look at - we borrow a lot of money just in refinancing earlier debts. We look very carefully at where interest rates are going and we try to predict. So if we believe interest rates are going to increase we will go to the market now and borrow the money and have it on hand because when you are going twenty or thirty years, if you can shave one-quarter of a point or a tenth of a point off, even if you borrow two or three months before you need the money, started to borrow now and have it on hand, because you will recover the interest differential or the cost of carrying the money for two months very quickly. I must say, our debt management people and people who manage our cash and give us advice on borrowing are very proficient.

MR. H. HODDER: What will be the effect, given the fact that the Canadian dollar, as of yesterday, is at an eleven month high in comparison to the US - which means of course that it will have an effect on our monies that are held in other currencies as well. What will be the positive effect of that particular change if the Canadian dollar continues to strengthen and if the other indicators like the Dow in the US is now - the last time I checked it was about 10.8 and the Canadian TSE is also finally showing some strength as well. What effect will these changes have on our cost of borrowing this year?

MR. DICKS: Well, it depends on what happens. There are a lot of factors (inaudible). The first thing is that we have assumed, for this year, that the Canadian dollar would trade at about $1.49 US, and that is on page 253. Hopefully the improvement you have seen will persist.

I had a meeting yesterday with the head of the Dominion Securities, RBS, Tony Fell. The only thing about it is that you have to be careful because the Dow, I just noticed this morning, is over $11,000. You are seeing historically unparalleled earnings - price to earnings multiples in terms of what they are trading at, particularly technology stocks. How long that will persist in the exuberance of the American markets, I do not know.

The other thing, too, is that inflation has not shown up in the American economy in the way it is expected. The economic paradigm was, if you got it down below about 5.5 per cent unemployment that would be inflationary. The assumption is that would continue.

I read an interesting article in The Economist a little while ago pointing out that wage inflation is there and is present but really where it is showing up and is more in (inaudible) levels and people are managing inventories a little more carefully; the point being that we were assuming - we always fight the last war rather than the current one. We assume then inflation won't show up again. He mentioned yesterday that he felt there might be possibility of an interest rate increase when (inaudible) has his meeting I think it is on May 17.

It is the little things. If the American interest rates go up, then that will affect the Canadian dollar because we are trading - I think it is on parallel that we pay less interest than the Americans, and it is very hard for the dollar to strengthen in that position. If the Americans raise interest rates, it will create more interest in the American treasuries and Canadians will have to raise our interest rates; the dollar will fall. These things usually happen; they are not necessary.

The other side of it, with strengthening commodity prices, that will probably bring up the level of the TSE because we are seen basically in the rest of the world as a commodity-based economy. As our commodity prices increase for grain, copper, metals and so on, that will generally bring up the interest in the Canadian dollar, because at a basic level people have to buy Canadian dollars to buy our products and we are still very heavy exporters of natural resources.

There are a lot of factors in there and it is hard to predict, but you watch them and you just see. Anything could happen. Latin America seems to be strengthening a little bit; the Far East is doing very well, and you expect that will create additional demand for our commodities as well, but the Euro has gone down and there are some concerns about how they are going to manage it in the European community. The Germans have a very tight fiscal policy. They are not very happy with the way the head of the European Central Bank has been responding; the decrease in interest rates, for example. My sense of it is - having met with some German bankers, I guess it was last week - they were not too impressed with that move.

There are a lot of factors internationally that affect the value of the Canadian dollar, where interest rates will be and so on.

It is just a guess - but Tony Fell being the most recent person you talked to, so you generally tend to adopt that point of view for whatever reason - there are some reasons to think that there might be some upward pressure on interest rates in the US and that would affect our dollar, which would probably drive it down and also increase our interest rates, which would increase our cost of borrowing as well. Hopefully, it will not happen, but it is a scenario.

MR. H. HODDER: We could move on to the next heading which is 1.1.03 Debentures. We note that we did have a $364,680,800 that was increased to $373,087,600, and you are leaving it at $373,094,800 this year. However, the Paid to Newfoundland Government Sinking Fund line is the $50 million. I'm wondering if you could tell me more about the payment to the Newfoundland Government Sinking Fund. Why would that increase from $39 million to $50 million in this budgetary year?

CHAIR: (Inaudible) interject here, Mr. Hodder, for a second. I understand from the Clerk that this is one area that is solely debated in the House, that it does not pertain to this Committee actually.

MR. H. HODDER: The minister and I have agreed that given the fact the House is sometimes a volatile environment, he has agreed to take some questions on these particular matters here.

MR. DICKS: Yes.

MR. H. HODDER: We may again ask the very same questions in the House so that all members of the Legislature can then have an equal amount of enlightenment.

MR. DICKS: Yes. I had mentioned to my critic, Mr. Hodder, that I did not mind doing the questions here. We have done this in the House before, and in particular with the Executive Council it is often hard to hear the questions and the answers across the House, because not everybody has equal enthusiasm for the details of the Estimates. I said sure, I would be delighted to answer the questions here where it might be a more informal environment. If we are not precluded, Mr. Chairman, by policy or by rules of the House, I would be happy to do it here as opposed to having to go through it in the House.

CHAIR: It is not a part of the Committee's procedure, I guess is the word, but if the Committee is in agreement that we can do it, I guess the Chair is at the wishes of the Committee.

MR. WALSH: Mr. Chairman, maybe what we could do is approve the headings of what we are here for without taking the final vote on the actual Committee's report, and then by leave we could go to the hon. member and just do a tête-à-tête back and forth for the sake of doing it. Maybe we could do that, because if not we could find ourselves pushing noon and still not covering off what we are here for.

Harvey, if that was comfortable for you, I would have no problem. I guess what we are looking at is we may chew up the time and not do it. If I could move the headings, then we could have that out of the way and go on with the discussions here without any problem at all, with just one vote left, and that would be for the report itself.

MR. H. HODDER: That is satisfactory. I have given a commitment from our committee that we can be out of here by 11:30 a.m. That is satisfactory to us.

CHAIR: Let's proceed to where you are going and at 11:25 a.m. we can call the subheads in total.

Go ahead, Mr. Hodder.

MR. H. HODDER: I think the hon. member raises a legitimate question that we should not go into the other aspects of the Department of Finance's responsibilities if it is going to mean that the time allocated would be exceeded, and we would have reason to return for another sitting. I've indicated that that should not happen, and in fact it will not happen unless my colleagues to my left here cause it to happen.

MR. WALSH: Mr. Chairman, for the record then. By leave we would stay with the Consolidated Funds Services, knowing that the Committee itself will rise at 11:30 a.m.

CHAIR: Okay, Mr. Hodder, go ahead.

MR. H. HODDER: The question was on the debentures and I was asking the question about why the amount Paid to Newfoundland Government Sinking Fund had changed from $40 million or thereabouts to $50 million.

MR. DICKS: The reason is the Canadian dollar and our exchange rates vis-à-vis the U.S. What we do with all the bond and debenture issues we have is that we have to put money into a sinking fund so that when the issue comes up for retirement, we put in sufficient funds that with investment income is equal to the amount we borrow. If we borrow $100 million, for example, over thirty years, each year we contribute a certain amount so at the end of the thirty years there is enough money there to pay off the debt. That is what our sinking fund is essentially.

The reason it is higher this year by $10 million is that a large part of our debt still is in American funds. It is $1.7 million, in that vicinity. Because the Canadian dollar, according to - last year we estimated the Canadian dollar trading at $1.41. This year we expect it to trade at $1.49, which is an increase. It means that we have to increase the amount of the contributions to the Sinking Fund by $10 million. Those are essentially exchange mechanisms. If the Canadian dollar were to strengthen back to $1.41, for example, we would save about $10 million.

WITNESS: (Inaudible) half on the new borrowing (inaudible).

MR. DICKS: I am sorry, it is about $5.5 on the American. The other thing was that last year we had borrowed a -

WITNESS: A $450 million issue (inaudible).

MR. DICKS: If I could refer you to page 252, the other amount was $450 million on the issue that we have there. It is a 1 per cent sinker. That is the amount we borrowed last year, 1998. If you go to page 252 you will see Payable in United States Dollars. If you go up three lines from that you will see: 1998/2028 6F. We borrowed $450 million at 6.15 per cent. If you go to the second column from the right, it says: Sinking Fund, $4.5 million. We did not have that issue last year and that is the reason it shows up this year. It says we have to make a 1 per cent contribution to the Sinking Fund for this. That gives us $4.5 million, and the balance of $5.5 is the exchange.

MR. H. HODDER: Going to the Canada Pension Plan heading, 1.1.04, page 5, it says: "Appropriations provide for interest expenses on funds borrowed from the Canada Pension Plan Investment Fund." I haven't looked at the direct report. Since we have a decrease here of the amount I have two questions. One is, how much does the government owe to the Canada Pension Fund? The other one is, why would there be a decrease in the debt expenses for this year?

WITNESS: (Inaudible) million.

MR. DICKS: If you look at the beginning, it is actually $636.7 million. If you go to the front of the book, page xi.

MR. H. HODDER: I know it is over there.

MR. DICKS: Pardon me?

MR. H. HODDER: Roman numeral...?

MR. DICKS: Page xi. At the beginning of the Estimates, page xi, you will see Provincial Direct Debt, Payable in Canadian Dollars, Due Government of Canada: $636.7 million. These are the monies that we have borrowed from the Canada Pension Plan over the years. So that is the total amount.

What is happening this year is that we are rolling over some borrowings that we had in previous years and those are at a higher interest rate because the interest rates are lower now. We are going to save approximately $3 million. A little bit less, $2.9 million, I believe.

I mean, you can follow all these but there is a schedule for the Canada Pension Plan if you look at page 253 which lists all our debt and the interest payments as well. These are at higher interest rates then we will now pay. Some of them are 9.8 per cent, 11.6 per cent, 13.6 per cent, 12.0 per cent. Right now we are borrowing in the range of 6 per cent. Less than 6 per cent on Canada Pension so that is the reason our interest rates are down. (Inaudible).

WITNESS: In some cases we are saving 5 per cent or 6 per cent on the loan.

MR. DICKS: In some cases 5 per cent to 6 per cent.

WITNESS: That is rolled over.

MR. H. HODDER: Okay. The next item is on page 6, 1.1.06, Recoveries on Loans and Advances. It is down approximately $1 million from last year. We budgeted $5,455,300. It dropped to $4,383,400 and this year we have an estimate of $4,133,500. That is in .02, Revenue-Provincial. I ask the question: Why are the recoveries down? Is it because we are doing a better job or interest rates have changed or a combination of both?

MR. DICKS: I would say the second rather than the first. I do not think there is a significant difference in what we are recovering. The main thing there is ENL. Those interest recoveries are down on loans and advances. Last year in 1998-1999, we budgeted $5 million. It went down to $3.9 million. This year we are anticipating collecting $3.7 million. Corner Brook Pulp and Paper is another factor. We collect $2.43 million in there. Small amounts are gone now. We had $5,000 we were collecting from the Electric Reduction Company of Canada, whatever that is, and also the old DRIE loans. There was $8,400 budgeted last year and we collected $36,000. We are not budgeting anything this year.

Next, there is another $190,000 budgeted for this year. Last year there was $198,000 budgeted there for the St. John's regional sewer system. The main difference is that recoveries from ENL are down by about $1.3 million in budget this year from the $5 million that we had last year.

Phil is the former expert on ENL. I do not know if that is as a result of people not paying interest. I suspect more so that interest rates have lowered over the last period of time.

WITNESS: Most of these are based upon floating rate loans so the rates have gone down. (Inaudible) ones are being collected.

MR. DICKS: Exactly. Of course, loans are being collected and as they are being paid off - the other thing we have done is we have curtailed the amount that we put out to ENL. At one point government was voting them about $14 million. We have reduced it to $7 million. So over time that will show up in less interest because there is less money being lent. There is a factor, I suspect, of fewer monies being lent and also interest rates being lower.

MR. H. HODDER: Where would things like interest coming in by way of student loan debt and the Fisheries Loan Board, where would that show up in here?

MR. DICKS: Your student loan debt, I am virtually certain, is accounted for in the Department of Education, if you look at the amount there. If you notice, that has been increasing very substantially. It was down about $2.5 million. This year we will put about $20 million in new student loans. Maybe one of the officials could check the Estimates for the Department of Education and we will find that for you.

The Fisheries Loan Board is in ENL as well. That was consolidated.

MR. H. HODDER: Okay, that was consolidated with ENL.

MR. DICKS: Yes, it was all brought together: ENL, the Fisheries Loan Board and I think the Farm Loan Board.

MR. H. HODDER: There are various others. They are all consolidated to one entry. It is not necessary to find the student loan. I just used that as a reference particularly -

MR. DICKS: The experience on the Fisheries Loan Board, contrary to some of the others, has been very good. I think they had a default rate of 2 per cent or 3 per cent. It was one of the more favourable experiences in government with actually lending money. Would you agree with that, `Mr. Former ENL President'?

WITNESS: That is right, exactly.

MR. H. HODDER: In the Newfoundland Government Sinking Fund heading, 1.1.07, we see that the Sinking Fund changed from $10,300,000 down to $10,200,000, then up to $35,600,000. What is the rationale for that?

MR. DICKS: What we are doing there is we are - CPP Sinking Funds. Where we are rolling over monies from CPP, the monies that were set aside in the Sinking Fund to pay off the CPP loans do not have to be used for that purpose because the government is re-lending the money. Part of the discussions we had with the federal government when we made the changes to the Canada Pension Plan was whether or not we would continue to borrow. Because provinces had always borrowed at a preferential interest rate. We all agreed we would pay market rates. They continued to give us more limited access to the funds. What they are trying to do is make it a more market oriented fund so they will invest in equities and general securities. Part of what we are doing this year is we are rolling over about $25.5 million, I believe it is, worth of Sinking Funds that we do not need because we are just rolling over our borrowings. That comes into revenue in the Province.

MR. H. HODDER: This wouldn't have anything at all to do with the change to the teachers' pension plan or to the public service pension plan?

MR. DICKS: No, that is all off balance sheets. That is the general debt of the Province.

The only thing that shows up from borrowings is the amount of interest we have to pay each year. The debt retirement is all - we call it off balance sheet. It is not budgetary because it does not affect your yearly cash flows. It would distort it, because each year you are $600 million or $400 million, and they are not new figures, just monies you are borrowing. The amounts we have committed to borrow for the pension plans, both the teachers' and the government pension plan, is not new money.

This is just a servicing of an existing debt. It has always been out there. We have never put aside the money. Now what we are doing is borrowing money to put into the pension plans and what will show up is the cost of servicing that debt. The interest cost is a budgetary item and the other one is just a rearrangement of your line of credit and your mortgage and this kind of thing.

MR. H. HODDER: In essence, what we have done with the $196 million or thereabouts is to move it from a indirect debt to a direct debt, which is on page xi in the front of the document.

MR. DICKS: Exactly, yes. That is precisely the explanation. The interest cost of doing that shows up in our budget. (Inaudible).

The Student Loans are on page 192, 3.4.03, in the Department of Education. You will see there the Revenue-Federal, .01, is about $2,250,000, and Revenue-Provincial, .02, is only $20,000. Our actual recoveries are pretty small on that, compared with, I think it is, the $20,720,000 goes out, and the net cost runs about $18,450,000.

MR. H. HODDER: In the Capital category on page 6 again, 1.2.01, Recoveries on Loans, Advances and Investments, it says: "Appropriations provide for principal recovery from various loans, advances and investments." We had an expectation last year of $979,100. In reality, it was changed to be $2,275,600. This year we are expecting it to go to $13,636,000. That is a provincial revenue. Why that change?

MR. DICKS: Do you want me to deal with them both?

MR. H. HODDER: Yes.

MR. DICKS: Some of the amounts we knew about. I will just run down through the amounts that we have. We have budgeted for $55,000 for Newfoundland Harvesting which we collected, and Electric Reduction Company of Canada, $67,200. Municipalities under DRIE, we had budgeted for $84,300 but they actually paid back $160,800. I suspect that is as a result of us allowing the municipalities to go out and refinance their debt with banks. It was about double the amount there. The St. John's regional sewer system, that amount is fixed at about $72,600. That is the amount we collected. It will go up to $81,000 this year. Newfoundland and Labrador Housing Corporation paid off a loan early. We had not budgeted anything for it but we received $1.290 million from them. So we got close to $1.3 million.

From Hotel Buildings Limited we got $430,000. That was the entity that owned the Holiday Inns. We had arranged for the sale of the four hotels to Fortis for about $6.5 million. We netted about $5 million. That is my recollection. We had about $1.5 million worth of various expenditures. What we did when we sold that was we kept two pieces of land: one was here in St. John's next to the Holiday Inn, and the other one was in Clarenville. We had that listed for some time. We did one of the things where we get a little more money, we went out on public tender. The best bid we had was about $130,000 so we refused to sell. Then we enlisted with a real estate agent and got $430,000, so we, through wise decisions, netted the Province another $300,000. That land we had kept, obviously. We did not see a need to give it away and we got a good return on that.

Five hundred thousand dollars last year was budgeted for Newfoundland Hardwoods. We did not get that, so that brought it down a bit. Newfoundland Industrial Development Corporation, we budgeted for and got $200,000.

This year the big difference, and I do not know if you need me to go through all these, is we got $55,000 from Newfoundland Harvesting and $81,000 from the St. John's regional system. The big difference there is that we will get $10 million in NLHC from repayment of debt that they owe us. Is that debt repayment?

WITNESS: That is not debt repayment (inaudible) pay us (inaudible).

MR. DICKS: I see. No, that is monies we have taken out of Newfoundland and Labrador Housing. That is not debt repayment. This is a surplus of cash that they have, so we felt it would be better used in the general revenues in the Province. (Inaudible) $10 million there.

As for Newfoundland Hardwoods, the $500,000 that we budgeted for last year that we did not collect will be collected this year. The wind up of Gull Island Power will give us $2.8 million this year. This is a subsidiary of CF(L)Co, I suspect, but there were a couple of related entities when these whole enterprises were established. There was Twin Co and Gull Island Power, so they have decided to wind up Gull Island Power. That $2.8 million will flow through to the Province this year. So the two main differences there are that and the Newfoundland and Labrador Housing Corporation.

MR. H. HODDER: Mr. Chairman, I will reserve the rest of the questions on Consolidated Fund Services for the House. I want to thank the minister for his cooperation. I do have some general questions toward the end of it, but I invite you to ask any other member if they have some questions at this point.

CHAIR: They indicated they pass.

Mr. Manning.

MR. MANNING: (Inaudible).

CHAIR: Okay. So, Mr. Hodder, you are still on the Consolidated Revenue Fund?

MR. H. HODDER: No, I'm going to move to some general questions. In the Auditor General's report there are sections on Accounts and Loans Receivable in Government. It indicates that during the last six years government has written off $198,301,000 in accounts receivable owing to it. There is a substantial, lengthy list in the Auditor General's report, which again is one page 43, and varies from writing off $47,551,000 to Baie Verte Mines Inc. to court fines of $3,840,000 million and so on and so forth.

MR. DICKS: Perhaps you could wait for the House and you could ask the question of the Member for Lewisporte.

MR. H. HODDER: You will note that yesterday when I was doing the Budget commentary I never read this list.

MR. DICKS: Right.

MR. H. HODDER: I did not read it because in some cases you and I know there are very good reasons why these matters should be written off. They are simply uncollectible.

I'm wondering about the process that is followed in government for writing off debts owed to government, whether they be by way of taxation or by way of loans. My question is on the process of determination rather than on the individual item itself.

MR. DICKS: Yes. I think if you want a reason that government should not be supporting businesses, all you have to do is look down through this list. Government of any political strip - and not to point fingers at yourselves or ourselves -, but it is just that government does not do a very good job of picking winners. We always pick dogs. If a company needs government support it probably should not be in business.

All you have to do is look down through this list. Government of any political stripe - not to point fingers at yourselves or ourselves, it is just that government does not do a very good job of picking winners - we always pick dogs. If a company needs government support, they probably should not be in business.

If you look down through this list, government over the years - well, of two political stripes at least - has had a habit of weighing in with guarantees to shore up industries that were probably unsupportable - for greater social good, I am sure, to maintain employment - but inevitably you result in some pretty substantial losses here: Baie Verte Mines, $47 million; NIDC, $30 million; Newfoundland Enviroponics, Sprung, that is $15 million.

Newco was an initiative of the Department of Fisheries to build a middle-distance fishery. Nobody in the Province, (inaudible) did not want to do it so they went out and contracted to build all these vessels. They were financed through, I think, Roynat, and we have been trying to get rid of them. So you have vessels that cost $5 million or $6 million and you are lucky if you can get $1 for them, or you give them away - or $1 million and so on. We still had to service the lease payments and write the debt up.

If you go down through all this stuff, how we decide whether or not to write them off, whether or not we will collect them - St. Lawrence Fluorspar Ltd., has been out of business; Baie Verte Mines has been out of business. Most of these businesses have been out of business for a decade, if you go down through them. Some of the amounts in the departments are small amounts that cannot be collected. The Department of Health for example, I suspect that is ambulance things and so on like that.

Harbour Grace Fishing Company Limited, that company is out of business. In some cases you (inaudible) the fishery because one company goes out of business and another one resurfaces with licences and so on, with many of the same shareholders and so on.

St. Clare's Mercy Hospital, I suspect that was related to the consolidation of the hospitals here. I know that the government agreed to pay monies to the Grace, I guess in one case the Salvation Army, in one case the Sisters of Mercy, was it? Now there may have been some debt owing to the Province as part of the package. I expect that they paid money and wrote off some debt.

You can just go down through - Governor's Park, that hotel has been out of business for about five or six years, and so on and so on and so on.

I don't know if there is much else I can add. Masonic Lodge, we were suing the masons there and we got, I think, $100,000. We were owed a million and we settled that thing.

Basically what we do is look at it and say: Is there any prospect for collecting it? If not, we carry it on the books in the event that some of the same people try to come back and borrow, or sue government, or there may be some money change and then we try to seize it, but after awhile it is just a non-performing debt and you may as well clear up your books and get rid of it.

It goes to Treasury Board; it is not done by the Department of Finance. We bring forward this stuff and try to do it on a timely basis.

MR. H. HODDER: My colleague asked me to ask: Is there any personal liability attached to any of these loans?

MR. DICKS: When it goes to Treasury Board, we look to see if there is any possibility of recovery. In some cases we sue individuals on personal guarantees. The commercial practice is different from government. If you go to a bank and you wanted to borrow $1 million, they will generally tie you up with cross-guarantees with corporations. They will take mortgages on your houses. To better secure the debt they will take personal guarantees. So if you, your wife, your children, your grandchildren or your dog, ever come into money they will get their money.

In government we are less of a financial and more of a social institution. Governments, federal and provincial, have lent money and taken smaller guarantees. In the case of $1 million, maybe there would be a $50,000 guarantee and so on like that. In some cases the government realizes, and in other cases it does not.

My view is that we should not be lenders, we should not be doing this, and we should be out of the business altogether; because very often what happens is we are not making loans on a commercial basis, we are not taking the types of security, and when we do we do not realize on it. So in all this debt there might be some government guarantees but by-and-large they are lent to large entities: Baie Verte Mines, Sprung Greenhouse, things like that, Newfoundland Dockyard. I should say the Newfoundland Dockyard is an example. The $8 million we have there, we have an ongoing - that was a support (inaudible) - dispute with the federal government about what the amount is of interest subsidy and we are in court about that now. So these are, probably more than anything else, amounts we will not collect and are just unfortunate examples of us making loans we should not have made.

The other thing here that is interesting, that maybe bears comment, is Court Fines, $3.8 million. What has happened with the court system is that the judges decided a few years ago that you could not carry out default provisions. So if you fine somebody $500, and they are in default thirty days, if they don't pay the $500 you can't now go and put them in jail for thirty days because they say it is the maximum debtor's (inaudible). So now what do you do in order to collect amounts when you cannot enforce default provisions? It would be very effective to go to someone's door and say: Thank you very much, you have not paid your fine, come along with me now.

People often had a way of finding the money. Of course, we removed that particular remedy so our court fines have gone up substantially as a consequence. We have been looking at trying to find some other way to collect the money. For the small amounts involved, if somebody owes a $50 fine, we are not going to hire a lawyer to attach their car and this kind of thing.

In some cases it is tough to collect monies, and government is not as proficient as the private sector in doing it, who tend to be more enthusiastic about pursuing creditors - debtors, I should say.

MR. H. HODDER: In essence, someone can walk away from the court with absolute impunity and they do not have to really worry because we do not have the mechanism to be able to go and enforce a collection.

MR. DICKS: Well, we do some things. For instance, if it is a traffic violation you cannot get your vehicle permit renewed. We are looking at tying it to other provincial privileges or licenses so that, for example, if you do not pay your fines perhaps you cannot get a moose license and things like that.

You would have to change the legislation to do it and you would question whether or not that is an appropriate thing to do. On the other hand, if people are fined and they do not pay it then why should they be allowed to have the other privileges that come in living in a regulated society?

These are issues around the edges of what we do.

MR. H. HODDER: There was some contemplation of legislation changes last year to give effect to these. Is that still a strategy of the government?

MR. DICKS: I asked about it recently. I honestly don't know where it is at. As you know, among the many other things we do it is one of those things that is on my list of things to check on. I asked about it about a month ago and frankly, Harvey, I forget the answer I got. I know they were looking at it as between justice and, I think, Government Services and Lands. I know there were some concerns about it; I just forget what they were offhand. I do not think any paper has been brought to Cabinet to implement that. I think they were looking around the natural justice issues and so on. From my point of view, it would probably be something productive to do if we can implement it.

The other thing, too, is that the problem, I believe, is that you do not have all of these centralized. It seems to me there is a computer problem. You would have to have everybody in a computer system and make sure you are identifying the right people. In other words, if someone owes a court fine, that is in the court system and we do not have a computer system that accesses that so before we make the justice systems available towards Services and Lands or the Department of Tourism, whoever gives out the moose licenses, or the Department of Forestry, you have to be careful about what information you make available. So to come up with a way to provide the information to other government departments, as we provide licenses, is not always easy because there is still an element of confidentially about the fact that someone has been fined, and criminal records, or quasi criminal records.

That issue we haven't really addressed yet. I think that was a major problem as to how you collate and use the information.

MR. H. HODDER: In the Auditor General's Report, she does make a statement, "There is no Government-wide system to record, control and collect total amounts owed to Government. Departmental systems range from manual year-end listings and other manual records, to computerized systems and there is little consistency among these systems."

Earlier in the morning you talked about the Oracle accounts receivable modular and how we did put in $1 million last year, it was increased a little bit, but it is not there this year. However, I am wondering if you could give us a response to the Auditor General's comment which, of course, was as late as - this document did not go into print until December 11, 1998. We are wondering, at that point in time, why would the Auditor General make such a general, broad statement and yet in your departmental response you do mention the Oracle accounts receivable modular. It may be too early to see a dramatic impact there but I want you to give a commentary on what steps have been taken to make sure there is consistency and control in the collections done by all government departments.

MR. DICKS: I could probably reply to that in this way: Some departments are better than others. For instance, one of the big concerns we had in merging the RST with the GST was that our collections were infinitely superior to the federal government.

Our people did a survey on Duckworth Street, for example. Within the shadow of the Sir Humphrey Gilbert Building, 75 per cent of the business were not remitting GST to the federal government. They were basically not collecting in the way that we would provincially. Our default rate for RST was under 1 per cent; my recollection was about one-third of a per cent. It is frightening. Having been out there myself, it is frightening how efficient our collectors and assessors were.

The retail sales tax system was as close as you could have to a virtually closed, completely effective system. Our people were very good at it, as people can attest - not always pleasantly.

While the Auditor General makes a general comment, that is not true of all departments and I think she would acknowledge that herself.

The second thing really, from my point of view, is cost-effectiveness. The Oracle system is one specific just to our agency, for example, just for tax administration. That is $1 million just to buy the hardware and so on.

If you were to go to every government department and try to come up with a comprehensive system that would provide all the information for every person, every amount owed to every government department, the cost would be phenomenal to provide computer systems support, the interlinking of the systems around government.

Secondly, you would have to ask yourself how effective it would be. For example, how effective would it be to know that Baie Verte Mines Inc. owes us $47 million? I just think that for the amount that we spend in trying to do something, I do not think we collect any more money. I think what we need to do - I think we should be out of the business of lending money, period. Then you would solve the problem.

MR. H. HODDER: I agree.

MR. DICKS: As long as these amounts are around, I do not think you will ever come up with a system where someone probably will not owe one government department money and still be accessing it somewhere else. We look to find a system that will do it. We do it with municipalities because it controls their finance. We had complaints because we hold up monies, when we know that they owe us money. That is fair enough, I think.

General speaking, we have 37,000 employees; we have 500,000-plus people who use government services in various ways. Unless you can encourage some sort of prohibition for government services, you owe government money, I cannot think of another way that you would collect it - for small amounts at least.

MR. H. HODDER: It does cause me some concern though when you hear tell of the Department of Human Resources and Employment or its predecessor, the Department of Social Services, tracking down some poor lady who received $24 in overpayment two or three years ago and whose husband to whom that was paid is long since dead. Suddenly they get a bill saying: You owe the department $25.

On the one hand, we know that kind of things happens. I am not saying that people in that division should not be aggressively collecting and should not be aggressively following up when there are cases where people have indeed accessed money that they do not rightly, shall we say, have access to, but when the Auditor General says that we have manual systems in some departments, surely the Department of Finance is a department that should be, shall we say, the leader in government in terms of tax collection.

I do agree with you that we have far too much corporate welfare, which is what we are looking at here. Our party policy, as you know, would be to change that, and to that extent we are talking in the same language.

I want to talk about what leadership you are giving to other government departments. It is now 11:28 a.m. and, Mr. Chairman, after this response we can call the heads.

MR. DICKS: What you say, I think, bears a lot of different comments that should be made. People who are very poor, who are depending on the public purse, are the easiest people to collect from; because if you overpay them $25 for their social services this month, you can deduct it from their cheque next month.

There is an issue involved as to what extent you should do that and enforce that. Where there is fraud involved, I think you should do it. On the other hand, people have such marginal amounts of income, I do not know that it is always a fair thing to do.

The other thing, too, is that where departments are willing we do work with them. The Department of Finance does not have the right or the authority to dictate to every government department as to how to run their affairs. Frankly, the line departments see themselves as providing services, not necessarily as providing money to government to run their programs and collecting money, so you have different levels of enthusiasm within the departments for our help, if you will.

In the Department of Social Services, for example, or Human Resources, we have two people over there working with them now that have been seconded to the department.

When I was in Treasury Board, we had a committee that went to work with the Department of Health and looked at some of the institutional problems they had; institutional in the sense of, with the institution. They went out and did an audit and tried to identify some of the problems. The consequence of that was we spent $6 million to improve the computer systems in just two of our institutional boards.

The other thing with the Department of Finance is that our systems do work very well. Our collection systems are very efficient. I am proud of the effort and the ability and the professionalism of our department. I think once you get outside the finance departments there is less of that ethic to work with it. I do not think the departments see themselves as collectors but rather as providers of government services, so there is less attention paid to it.

Having said that, some of departments have made a lot of progress. Human Resources and Employment have done a very good job in reforming some of its welfare provisions in the sense of whom they provide it to, ensuring that people are getting what they should get, taking people off who should not be there, and reforming their system so that they make it more attractive for people to go to work and so on - not precisely collections.

The other thing, too, is small amounts of money. I do not care what system you have; they are just not worth spending the money on to collect it. There is no point in spending $500 to collect $25. To some extent, even if you have the most perfect system in the world, you would still be writing monies off just on efficiency basis.

CHAIR: Thank you very much, Minister.

Since there appears to be no other speakers, I would ask the Clerk to call the subheads.

On motion, 1.1.01 through 3.1.01 inclusive, carried.

On motion, Department of Finance, total heads, carried.

CHAIR: I want to thank you, Minister, for your appearance here today, and your staff. You have done a superb job. I want to thank the Committee for their precise questions. I want to thank the Clerk and, of course, let us not forget our recorder up there, Kevin Collins.

Thank you very much.

MR. DICKS: Mr. Chairman, I want to thank the Committee for this opportunity to appear before them and shed some light on the mysterious workings of the department and its officials. Thank you for your courtesy.

On motion, the Committee adjourned.